Forecasts of the value of the Australian dollar are of great importance to importers, exporters, fund managers, and investors. Unfortunately, accurate forecasts are hard to come by. In a survey of 17 economists by the Australian Financial Review (AFR) in December 1999, not one predicted a drop in the value of the dollar at December 2000. The range of forecasts was from US66c to US75c (average US71c). But the Australian dollar did drop – from US65c to US55c.
The economists forecasts did not adapt much as time went on. In forecast updates throughout 2000, the value of the Australian dollar was predicted to rise in six months but instead it continued to fall.
Into this challenging void comes a forecasting model developed by Charlie Nelson. His forecasts of retail spending and new vehicle sales are renowned for their accuracy. His model of the Australian dollar, both in $US and trade-weighted index (TWI) terms did not predict an increase during 2000. It predicted a decrease, albeit not as large as eventuated.
Furthermore, our recent research has identified the primary reason for changes in exchange rates of developed countries over the past 10 years. This indicates what must be done, largely by the government, to resurrect the $A A copy of our research document is provided to subscribers.
Based only on information available in December 1999, the
forecast for December 2000 was US62c, much closer than any of the forecasts of
the economists surveyed by AFR. Chart 1 shows the TWI forecast based only on information
available in December 1999.
The performance of the model from different origins is shown in Chart 2. One quarter ahead forecasts were in the correct direction and quite accurate in four of the five forecasts shown.
Our forecasts are in terms of $US and TWI for one year ahead at quarterly stops.
They are updated every month, as new data becomes available.
Annual subscription is $500 plus 10% GST.
To subscribe, download and complete the order form and return to foreseechange by mail or fax. We will invoice you after your first forecast update. We will also send you our research paper that explains why the $A has been so weak lately and what is needed to revive it.
Call Charlie Nelson (03) 9386 4841 if you need further information.
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