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Aussie Will Slide to Year-Low as U.S. Slumps, FX Concepts' Ainsbury Says
Australia’s dollar will drop toward 80 U.S. cents, its lowest in more than a year, by December as data signals a U.S. recession and investors dump risky assets, said FX Concepts LLC, the world’s largest currency hedge fund.
A Commerce Department report today may show the U.S. economy grew in the second quarter by less than previously estimated. Australia’s dollar has declined 3.3 percent since an Aug. 6 report showed employers in the world’s largest economy cut jobs for a second month. Australia’s central bank has kept interest rates unchanged since May as the outlook for global growth worsened and domestic inflation slowed.
“You can’t avoid the global implications of a U.S. problem,” said Scott Ainsbury, a New York-based money manager who helps invest about $9 billion at FX Concepts. “When the stock market here starts to turn down and we get manufacturing numbers indicating that we’re in recession again -- which we expect -- that’s going to be bad for the Australian dollar, bad for global commodity prices and bad for economic factors in Australia.”
Australia’s currency traded at 88.61 U.S. cents as of 2:18 p.m. in Sydney from 88.63 cents in New York yesterday. The median forecast of economists polled by Bloomberg News is for it to trade at 88 cents by year-end.
The Aussie dropped 20 percent in 2008 after the collapse of Lehman Brothers Holdings Inc. froze credit markets and led investors to sell higher-yielding assets. It rallied 28 percent the following year as stimulus measures by policy makers worldwide spurred a recovery and boosted prices for commodities that generate a majority of Australia’s export earnings.
‘Risk Currency’
Ainsbury forecasts the Aussie will end this year near the 80-cent mark, completing an 11 percent decline in 2010. The currency last traded below that level on July 20, 2009, when it reached 79.89 cents.
“In terms of the whole global asset allocation structure, the Aussie is viewed as a risk currency,” he said. “It’s a way to express a negative world view.”
Australia’s yield premium, offering investors in 10-year government bonds 2.3 percentage points more than an investment in similar-maturity Treasuries, will support the Aussie near the 80-cent level, he said.
Ainsbury expects the Aussie to also fall versus the yen and the Swiss franc as investors seek the safety of current-account surplus nations.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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