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What’s the forecast?

What’s the forecast?

Interesting to see the rash of revisions to forecasts for the A$ exchange rate. Various investment houses are today offering substantially lower forecasts for where the A$ will trade during 2014 compared with their previous calls. The rationale for the revisions is of course set in terms of very logical-sounding underlying drivers, including Chinese and Australian GDP growth rates, and expectations for what the RBA might do with official interest rates.

However, you can’t help feeling that the real reason for the downward revisions is that the A$ has fallen sharply, and their previous forecasts are starting to look a little silly. If the previous forecasts have turned out to be “completely not right” (with apologies to Lauren Child), how much confidence should we place in the new forecasts?

It is perhaps a little unfair to pick on one unfortunate example like this, but after a few decades of watching financial markets, unfortunate examples like this start to feel like the norm rather than the exception.

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Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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