A decline in commodity prices and narrowing yield spreads could see the Australian dollar lose up to a quarter of its current value by 2016, according to a foreign exchange strategist.
"If the U.S. tightens as expected and the Chinese economic correction continues to drag down commodity prices [the Australian dollar] will fall," Kit Juckes, global head of foreign exchange strategy at Societe Generale wrote in a note Tuesday.
A 25 percent decline in the Australian dollar would bring the currency to around $0.72.
Juckes cites copper as an example of a commodity that is vulnerable to a correction. Societe Generale forecasts that prices for the red metal are set to fall 14 percent to around $6,000 a metric ton by 2016.
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