RBA Rate Cut Needed to Weaken Aussie Below $1, Grain Trader Says
The Reserve Bank of Australia should consider interest-rate cuts to weaken an “overvalued” local currency as the mining boom peaks, said Emerald Group Australia Pty., the country’s fifth-largest grain marketer.
The so-called Aussie should be trading at 80 to 90 cents to the U.S. dollar and it has remained above parity because the central bank is holding up interest rates, Chairman Alan Winney said in an interview in Melbourne.
“We’re tailing off in the mining boom,” said Winney, whose company is half owned by Sumitomo Corp. (8053), in an interview. “A number of our industries are really struggling. Productivity in Australia is low, costs are too high, our manufacturing industries are suffering significantly, a number of our other service-type industries are suffering. We could have a correction in Australia if things continue.”
The Australian dollar, which has held above $1 for a record stretch of more than eight months, rose 2.2 percent in the past month, the biggest gainer after the greenback among 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Index. The nation’s central bank kept its benchmark rate unchanged at a half-century low this month, saying policy remains appropriate amid signs the economy, which expanded 3.6 percent last year, is improving.
Australia has the highest benchmark interest rate among major developed economies even after the RBA cut rates by 1.75 percentage points over the past two years to 3 percent. The so- called Aussie, the world’s fifth-most traded currency, was at $1.0323 as of 11:25 a.m. in Sydney, compared with its average of about 75 cents since it was freely floated in 1983.
Companies posted a fifth quarterly decline in profits in the three months through December amid weaker demand in the mining, manufacturing and construction industries, a government report released on March 4 showed.
“Australian interest rates being held where they are is keeping the dollar up and we could probably do with slightly lower interest rates,” said Winney. “The Aussie dollar is certainly not helping exports out of Australia in terms of agriculture products. I think it is overvalued and it’s causing more damage to many of the other Australian industries other than mining.”
A drop in commodity prices last year has weighed on the earnings of Australia’s biggest miners, with BHP Billiton Ltd. (BHP), seeking to cut costs after first-half net income slumped 58 percent. Resource companies account for about 19 percent of Australia’s S&P/ASX 200 Index (AS51), according to data compiled by Bloomberg.