The return of the Australian dollar to the high-90s is causing concern that mining projects will be shelved.
Economic forecaster BIS Shrapnel has reportedly downgraded forecasts for construction work in the sector, due to the resilience of the Australian dollar.
The Australian reported today that BIS Shrapnel is expected to forecast that engineering construction work will fall 7.6 per cent in 2013-14, compared with a previous forecast of a 5.4 per cent decline.
“The risk is that if the Australian dollar remains higher for longer, then we could see more mining projects, particularly, drop out of the forecasts, and the fall in engineering construction work will be steeper,” BIS senior manager Adrian Hart told The Australian.
Early today the dollar traded at 96.17 US cents, down from 96.66 cents on Thursday.
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It has risen at least three US cents since the beginning of the month, hitting a series of five-month highs earlier in the week.
OM Financial senior client adviser Stuart Ive said a lot of the larger managed funds were selling the currency because they don’t think it would rise much further.
“We’re heading into November, not far from the Christmas break, so a lot of the big players would be booking profits,” he said from Wellington.
“The volumes are looking a little bit thin out there at the moment.
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“It’s a very confusing picture at the moment because you have a lot of things going on.
“Most central banks have been ruling out the chance of a further interest rate cut, but they’re also pushing out the chances of a rate rise out further and further.”
Ive said there also was a bit of nervousness that US politicians would go through another round of brinkmanship when it has to get its budget passed in January.
The US government was shut down for the first two weeks of October after the Congress failed to agree to a budget by the end of the financial year.
The US government now has enough funds to operate until early next year.
On Friday night, Australian time, the US will release durable goods data for September, which covers sales of household goods like fridges and washing machines.
Ive expects the Australian dollar to trade in a range between 95.60 and 96.70 cents on Friday.
