Pacific Investment Management Co., manager of the world’s biggest bond fund, has boosted holdings in Australia and New Zealand as it expects policy makers to cut interest rates to combat currency gains and weaker world growth.
Decisions in larger developed economies to keep policy rates close to zero and engage in currency market intervention have helped push the Australian and New Zealand dollars higher, according to Scott Mather, head of global portfolio management at Pimco, which oversees $1.8 trillion in assets. The Newport Beach, California-based company’s holdings in the region are at the highest levels “in a very long time,” he said at a briefing in Auckland.
“Rates will continue to fall in this region, in Australia and New Zealand,” Mather said in a conference call from Auckland. “It’s partially the reflection of weak global growth and partially in response to an abnormal amount of currency strength relative to what history would tell you we should have.”
The Reserve Bank of Australia has the highest benchmark rate among major developed economies, even after reducing it by 1.5 percentage points over the past year to 3.25 percent. The Reserve Bank of New Zealand’s key rate is a record-low 2.5 percent. Higher yields, safe-haven flows and buoyant global commodities demand have helped push the South Pacific currencies above their 20-year averages.
The so-called Aussie dollar has climbed almost 90 percent versus its U.S. peer over the past decade, while its New Zealand counterpart has risen by more than 70 percent.
The Australia and New Zealand region is likely to become more important for the fund manager, Mather said.
“It’s a bigger part of our portfolios here than it’s been in a very long time,” he said. “When you think about regions of the world that we may be avoiding, and relative differences in economic performance and in the amount of debt outstanding, you can understand the attraction.”
The Australian dollar bought $1.0376 as of 11:22 a.m. in Sydney, while the New Zealand dollar was at 81.93 U.S. cents. Australian 10-year debt yielded 3.22 percent, while the New Zealand rate was at 3.57 percent.
Australia’s gross domestic product will expand 3.6 percent this year and New Zealand’s will grow 2.5 percent, outpacing the average 1.26 percent pace for economies in the Group of 10 currencies, according to surveys of economists carried out by Bloomberg News.