Aussie Gains to Be Capped as RBA Talks Down Currency, Diam Says

Australia’s central bank probably will succeed in capping the local currency this year as it seeks to boost an economy that’s losing full-time jobs at the fastest pace in two decades, Tokyo-based money manager Diam Co. said.

The Aussie’s biggest annual slide in five years in 2013 didn’t prevent Reserve Bank of Australia Governor Glenn Stevens from reiterating the need for a weaker currency. Diam, which manages about $120 billion, said Stevens probably won’t tolerate Aussie strength while growth remains muted. Daiwa SB Investments Ltd. said it won’t add further to its holdings until the RBA curbs efforts to verbally drive the exchange rate lower.

“Monetary authorities in Australia are emphasizing their stance of checking currency strength,” Hideya Kubo, a senior fund manager at Diam, said in a Jan. 15 phone interview. “The Australian dollar will have a hard time rising this year, as interest-rate hikes by the RBA are also likely to be in the distant future.”

The Aussie traded at 88.22 U.S. cents as of 9:17 a.m. in Sydney after dropping yesterday to a three-year low of 87.77 cents. It slumped 14 percent in 2013, the most since a 20 percent slide in 2008.

Stevens said the exchange rate was “uncomfortably high” in statements accompanying policy decisions on Nov. 5 and Dec. 3. The RBA board has kept the benchmark rate at a record-low 2.5 percent, having reduced it by 2.25 percentage points since it embarked on the current easing cycle in November 2011.

Open-Minded

The RBA chief said on Nov. 21 that policy makers wouldn’t “always eschew” intervention in foreign-exchange markets and that they remained “open-minded” in weighing the costs and benefits of currency sales. In an interview published in the Australian Financial Review Dec. 13, he signaled a weaker Aussie is preferable to lower rates and a level of 85 U.S. cents would be “closer to the mark than 95 cents.”

The currency is predicted to be at 86 cents by the end of 2014, according to a Bloomberg survey of forecasters.

While Kei Katayama, a fund manager at Daiwa SB, bought Aussie-denominated assets last month to shift to a “neutral” position, he said he isn’t planning on adding to that further yet. He had trimmed his holdings in September and October.

“Eventually, Australian assets will be attractive,” Katayama said in a Jan. 15 phone interview. “For now, it depends on how the RBA wants to direct the currency level.” Daiwa SB manages about $47 billion.

Job Losses

The RBA may retain its stance on the Aussie for now after a government report yesterday showed the number of people employed unexpectedly fell by 22,600 in December. Economists surveyed by Bloomberg had predicted a gain of 10,000 jobs.

Full-time positions dropped by 31,600 last month, lifting losses to 67,500 in 2013, the worst annual performance since the nation shed 88,800 jobs in 1992. The unemployment rate held at 5.8 percent, matching the highest level since June 2009.

Traders of interest-rate swaps saw a 44 percent chance the RBA’s benchmark cash target will be lower by the middle of the year, up from 23 percent odds a week ago, according to data compiled by Bloomberg.

The Australian economy will probably grow by 2.7 percent this year, with the expansion accelerating to 3 percent in 2015, according to the median estimates in a Bloomberg survey of economists.

A probable improvement in Australian growth in two or three years time may make a strong currency “more acceptable to some extent,” said Diam’s Kubo. “The economy is expected to remain below its potential this year, so I think the Australian dollar is biased to be a little weaker.”

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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