Bell Potter analyst Charlie Aitken has forecast an Australian dollar at US68¢, interest rates below 2 per cent, and a stockmarket at 6000 after radically revising his predictions.
"Both the Baltic Dry Index and RBA cash rate are below levels seen at the peak of the GFC," he told clients on Wednesday morning. "I now believe it's only a matter of time before the Australian-US dollar cross rate re-correlates to Global Financial levels.
"On that basis this morning I am downgrading my medium-term Australian dollar price target from US75¢ to US68¢."
Mr Aitken also said the Reserve Bank cash rate would likely fall below 2 per cent.
"However, against a global backdrop of deflationary forces and competitive currency devaluations, I think there is very real possibility of the cash rate with a '1' handle at some stage over the next 12-18 months," he said.
"As 'the once in a century' windfall of the mining boom becomes a distant memory, it doesn't require a huge leap of faith to envisage our economy experiencing the same anaemic growth as the rest of the Western bloc ... as such, it is absolutely critical for the Reserve Bank to target a lower cash rate and a lower dollar.
"Unfortunately for savers and retirees, that means an extended period of very low ( or even lower) cash rates and fixed interest returns."
He said that by cutting rates last week, the Reserve Bank had "joined the global currency war". "This is a very important development that requires a medium-term forecasting reaction," he said.
"We have now become the latest country to adopt competitive currency devaluation as a monetary tool. Welcome to the global currency wars," he argued.
"Make no mistake this was a big decision for the Reserve Bank. To suddenly change tack with the cash rate already below global financial crisis levels, and abandon a 'period of stability' in favour of a new aggressive easing policy is a monetary event which should not be taken lightly."
Mr Aitken said he expected property prices and the stockmarket to lift as a result.
"I am also upgrading my forecast for median residential property price gains to 10 per cent from 5 per cent in 2015 and upgrading my ASX200 trading range forecast from 5000-5500 to 5500-6000."
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