Australia’s Dollar Is in Every Bubble, FX Concepts’ Taylor Says

Australia’s dollar, which fell below parity against its U.S. peer last week for the first time since June 2012, remains overvalued after a commodity boom, according to John Taylor, founder of currency-hedge fund FX Concepts LLC.

The Aussie “is in a bubble -- it’s in every bubble you can find,” Taylor, chief executive officer of FX Concepts in New York, said in an interview on Bloomberg Television’s “Market Makers” with Erik Schatzker and Trish Regan. “It’s all because they built up their commodity sector tremendously. The currency went way up, the rest of the economy is ferociously uncompetitive.”

An index of Australian construction fell to 36.7 in April, the lowest level since 2009, from 44.4 the previous month, as the S&P GSCI Total Return Index of 24 commodities dropped 4.7 percent, the biggest decline since May 2012. The Aussie fell 3.6 percent against developed market peers over the past month, the most among 10 currencies tracked by Bloomberg Correlation-Weighted Indexes.

Australia’s dollar declined 0.7 percent to 99.53 U.S. cents as of 12:46 p.m. in New York today after touching 99.41, the weakest since June 14. It halted a record 10-month stretch of trading above parity on May 10.

China Link

“Australia is closely tied with China,” Taylor said, calling the Aussie one of his least-favorite currencies. “China is pushing internal growth, not building so many highways.”

The Aussie dropped as a report today showed Chinese industrial production growth in April trailed economists’ estimates, while retail sales slowed from the previous month. Separately, National Australia Bank Ltd. said its index of business confidence in the country fell to minus 2 in April, the lowest since November, from 2 in March.

The Reserve Bank of Australia lowered the overnight cash-rate target by a quarter percentage point to 2.75 percent on May 7, saying the exchange rate has been at “a historically high level over the past 18 months, which is unusual.” Traders see about a 60 percent chance that the central bank will reduce the rate in three months, according to data compiled by Bloomberg on overnight-index swaps.

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