The euro dropped to a record low against the Australian currency amid speculation the 17-nation region’s sovereign-debt crisis is spurring investors to diversify into non-European assets.
The euro dropped against 11 of its 16 major counterparts this year as the region’s leaders struggle to halt a two-year-old crisis that began in Greece. Australia last month became one of only 14 nations to hold the AAA rating from all three main credit-rating firms. Standard & Poor’s said Dec. 5 that Germany and France may be stripped of their top grade and put 15 euro countries on review for possible downgrade.
“European pension funds will act aggressively to diversify into higher-rated sovereign debt as the universe of top-rated nations diminishes,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “Australia will benefit from these flows, and the Aussie dollar will continue to gain against the euro as investors move out of the European currency.”
The euro fell as low as A$1.29135 before trading at A$1.2929 as of 4:44 p.m. in Sydney, a 0.4 percent decline from yesterday in New York. The currency may drop to A$1.22 by the end of January, Magnus said.
Australian sovereign bonds have provided a 14 percent return, including reinvested interest, since Dec. 31, the best performance after the U.K. and New Zealand, Bank of America Merrill Lynch indexes show. German government securities rose 9 percent while U.S. Treasuries advanced 9.6 percent.
“With a soft landing expected in China, the risk of holding growth-sensitive currencies is lower,” Magnus said.
Chinese Premier Wen Jiabao said yesterday the nation will keep its export policies such as tax rebates “basically stable” next year, according to a statement posted on the central government’s website yesterday. China is Australia’s largest trading partner.