Investors should sell Australia’s dollar against currencies from its main trading partners as commodity prices slide and the central bank delays further interest-rate increases, Westpac Banking Corp. said.
Australia’s currency fell to an eight-month low against the greenback today as concerns that Europe’s debt crisis is worsening and China’s economy is headed for a slowdown undermined confidence in the global recovery. Traders are betting the Reserve Bank of Australia will keep borrowing costs unchanged for the rest of the year, according to bank bill contracts on the Sydney Futures Exchange.
“Risk aversion is still rising, commodities are under pressure and the RBA looks set to sit on its hands, at least for the next few months,” said Robert Rennie, head of currency research at Westpac in Sydney. “Greek debt concerns, the German ban and the very sick commodities prices and some very genuine concerns about China are all reasons to sell the Aussie.”
Westpac recommends selling the Australian dollar at current levels against a basket of the yen, euro, U.S. dollar, New Zealand dollar, pound, Canadian dollar and the Swiss franc. The currency is likely to drop 3 percent against Westpac’s trade- weighted gauge, the company predicts.
Investors should add to the trade if the Australian dollar rises 1 percent and exit the position if it climbs about 2.5 percent above today’s levels, Rennie said.
Australia’s currency fell to 85.84 U.S. cents as of 1:33 p.m. in Sydney from 86.45 cents yesterday in New York. It has declined 7.1 percent in the past month.
Westpac’s basket uses the main tradable currencies in the RBA’s trade-weighted index, excluding currencies such as China’s yuan, which is fixed against the U.S. dollar.