The Australian dollar slumped to a near three-year low during Asia trade after local economic data disappointed and Goldman Sachs warned the resource-rich country was at risk of a steep economic downturn.
New government figures today showed home loans rose by 0.8 per cent in April, well below the 2 per cent gain expected by economists, signalling a tepid housing sector recovery despite interest rates being at record lows.
A separate survey published by National Australia Bank showed business sentiment was unchanged from the previous month at a level of minus one. A reading below zero indicates that pessimists outnumber optimists.
"The pick-up in the housing market continues to underwhelm whilst conditions in the business sector have improved but remain relatively poor," Michael Turner, a currency strategist at RBC Capital Markets in Sydney, wrote in a client note
The Aussie dollar slid to a session low of 93.82 US cents after the home-loan data were released, its lowest level since September 2010.
In a sign of fading global investor sentiment toward Australia's economy, Goldman Sachs cut its Australia growth and currency forecasts and warned the economy was at risk of recession amid declining corporate spending, a still-high exchange rate, weakening export prices and cutbacks in public spending.
The US investment bank put the risk of a recession in Australia at about 20 per cent.
"While a 4-out-of-5 chance of avoiding recession doesn't sound alarming, it is notable that this is the highest probability in the post-war period that didn't result in a subsequent recession outside of the global financial crisis," Goldman economists wrote in a note to clients.
The investment bank added, though, that an improving global economy and the stimulatory impact of a weakening Australian dollar, coupled with record low interest rates, would likely be enough to drive continued growth.
Australia's central bank held interest rates at a record low 2.75 per cent this month as the fading of the long mining-investment boom continues to weigh on the rest of the economy. Financial markets are pricing in a 50% chance of another quarter-point cut in July.
Goldman now expects the Australian dollar to trade at 85 US cents in 12 months' time, compared with an original forecast of 90 US cents. It cut its 2013 growth forecast to 2 per cent from 2.4 per cent and its 2014 forecast to 1.9 per cent from 2.7 per cent.
