Loomis Sayles & Co.’s Dan Fuss, whose flagship fund beat 97 percent of rivals over the past three years, sees four commodity currencies as the “most attractive,” even as prospects the Federal Reserve will pare stimulus drive analysts to forecast most of them will decline.
His top pick is the New Zealand dollar, followed by the Australian and Canadian currencies and then the Mexican peso. While all are associated with wealth from resources exports, from oil to iron ore to agriculture, Fuss is focusing on something else.
“Look at countries from a longer-term viewpoint and ask yourself: What is their Treasury borrowing environment going to be?” the 80-year-old fund manager said in an interview today in Tokyo. “In other words, how much money does the national government have to raise, number one. And then number two, how likely are they to raise it domestically. If you can get that right, then you’re going to do well on a longer-term basis.”
Commodity currencies have struggled against the dollar this year as the Federal Reserve prepares to taper the quantitative easing program that has fueled a rise in asset prices around the world. Among Fuss’ picks, the Aussie has tumbled 13 percent, followed by a 6.3 percent slide in Canada’s loonie, and a 1.5 percent decline in Mexico’s peso. New Zealand’s kiwi is 0.1 percent lower.
Kiwi No. 1
Analysts predict the kiwi will drop to end 2014 at 80 U.S. cents from 82.85 cents as of 6:05 a.m. in London, according to the median of estimates compiled by Bloomberg News. Fuss isn’t deterred.
“The number one most attractive place in the world for a currency is New Zealand,” Fuss said. “Government stability is very high. The difference between the right and the left, you can’t find it!”
The New Zealand currency climbed as much as 0.4 percent after Reserve Bank of New Zealand Governor Graeme Wheeler said the economy’s strength means he may raise the official cash rate 2.25 percentage points within 2 1/4 years after holding it at a record-low 2.5 percent today.
Australia and Canada also attract Fuss because they rank very high in terms of government unity. Analysts again see both currencies weakening next year, with the Aussie falling to 89 U.S. cents from 90.23 cents today, and the loonie weakening to C$1.08 per U.S. dollar from $1.0591.
Fuss stressed he has his own “big reservations” about the Australian dollar, because of the country’s reliance on iron ore, its biggest export. Australia’s economy is slowing as a once-in-a-century mining investment boom wanes.
“They’ve gotten perhaps too dependent there,” he said.
The Mexican peso is the only one of Fuss’s four that analysts predict will rise next year, ending at 12.50 per dollar from 13.0455.
“Mexico is benefiting big time from incremental investment from the U.S.,” he said. But while it’s “coming up rapidly,” there are still “some big hurdles to jump.”
Fuss said he’s neutral on the euro, which has been the best performing major currency with an 8.6 percent rise this year, according to Bloomberg Correlation-Weighted Indexes. He sees further declines in the yen, which is set to be the biggest loser for a second year in 2013.
“The euro’s a little high, but by God it’s hanging up there,” Fuss said. “The yen, it’s government policy to have the currency lower. Don’t fight government policy!”