IMF May Classify Aussie, Canada Dollar as Reserve Currencies

The International Monetary Fund said it’s considering classifying the Australian and the Canadian dollars as reserve currencies.

The two “are to be considered for inclusion” separately in the IMF’s “Currency Composition of Official Foreign-Exchange Reserves” data, the Washington-based lender said in a report published on Nov. 14. They’ve previously been included in an “other currencies” category in the COFER reports.

The IMF plan comes as Australia and Canada have shown more signs of stability in the fallout of the 2008 financial crisis than the world’s biggest developed economies. While the U.S., to the U.K. to Japan have been coping with increasing debt loads, deficits in Canada and Australia are forecast to be below 5 percent of gross domestic product in 2012 and are expected to shrink.

“It really helps to cement the stability of these currencies,” Ravi Bharadwaj, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. (WU), said in a telephone interview. “The Australian and Canadian economies have been much more stable than the top economies in the post-financial-crisis era.”

The Australian budget is forecast to show a surplus that is 0.1 percent relative to GDP next year, after a 3 percent deficit in 2012, according to the median estimate of economists surveyed by Bloomberg. Canada’s may shrink to a 0.6 percent deficit from 1.2 percent. The U.S. shortfall relative to GDP is forecast to contract to 5.7 percent from 7 percent.

Risk Appetite

“The Canadian and Australian dollars a have been appreciating today, and that’s partly to do with the better- than-expected appetite for risk that we’re seeing across all sectors of financial markets,” Bharadwaj said. “The Aussie’s gain seems particularly strong and also based on the IMF decision to raise it to reserve status.”

The Aussie climbed 0.6 percent to $1.0404 as 12:39 p.m. in New York after gaining as much as 0.8 percent, the most since Nov. 6. The Canadian currency advanced 0.5 percent to 99.65 cents per U.S. dollar.

The Canadian dollar, nicknamed the loonie for the image of aquatic bird on the C$1 coin, has gained 2.5 percent against the greenback this year, while the Aussie has rallied 2 percent. Australian government bonds have returned 5.9 percent in 2012, compared with 2.6 percent for Canada’s debt and 2.8 percent for Treasuries, according Bank of America Merrill Lynch indexes.

‘Others’ Rise

“Elevating the Aussie and loonie to reserve status certainly helps to ascertain how global central banks are diversifying their currency holdings,” Bharadwaj said.

The share of global foreign-exchange reserves denominated in so-called other currencies rose to 5.3 percent in the second quarter, from 2 percent in 2007, according to IMF data published in September. The percentage of reserves denominated in U.S. dollars was 61.9 percent in the second quarter.

The IMF also counts the euro, the yen, the British pound and the Swiss franc as reserve currencies with separate data points in the COFER reports.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net