Australia’s dollar, the best performer among major peers this year, may extend gains after the European Central Bank’s unprecedented easing boosted demand for the currency, according to Westpac Banking Corp.
The Aussie’s Bloomberg Correlation-Weighted Currency Index climbed 0.4 percent yesterday, taking this year’s advance to 4.7 percent, after the ECB became the first major central bank to charge fees on deposits. President Mario Draghi also unveiled plans to support an economy threatened by deflation. In contrast, Australian policy makers this week acknowledged “somewhat firmer” growth and were backed up by a report showing the economy expanded at the fastest pace in two years last quarter.
“The Australian dollar does appear to be one of the attractive options for investors as they ponder ongoing ECB liquidity creation,” said Sean Callow, a senior currency strategist at Westpac in Sydney. “It does seem that the market response to the ECB’s raft of easing measures is to buy everything not nailed down,” except the U.S. dollar, he said.
The Aussie traded at 93.27 U.S. cents at 12:31 p.m. in Sydney after advancing to 93.47 yesterday, the strongest since May 19. The currency rose as high as 68.91 euro cents yesterday, the most since November, before trading at 68.27 today.
Growth currencies “are likely to outperform for the immediate future,” Jonathan Lewis, the New York-based chief investment officer at Samson Capital Advisors LLC in New York, wrote in an e-mail yesterday. Investors who “believe in growth” should look at the currencies of Australia, New Zealand, South Korea and Chile, he wrote.
Australian gross domestic product expanded 1.1 percent in the first quarter from the previous three months, the Bureau of Statistics said June 4, beating the 0.9 percent gain forecast in a Bloomberg News survey. From a year earlier, the economy grew 3.5 percent. The median estimate is for 2.8 percent growth in 2014, compared with 2.5 percent in the U.S. and 1.1 percent in the euro area.
The RBA held its benchmark rate at 2.5 percent this week and Governor Glenn Stevens indicated a “period of stability” for borrowing costs. Policy makers are weighing improvements in the labor market and non-mining sectors against subdued inflation and the end of a resource investment boom. Stevens is scheduled to speak in San Francisco on June 9.
Australia’s employers added 10,000 jobs in May, following a 14,200 gain the previous month, according to a Bloomberg survey before the data is released on June 12. The U.S. Labor Department will say today that employers added 215,000 jobs last month after hiring 288,000 in April.
“The Australian dollar should perform well on most crosses near term, but whether the Aussie-U.S. dollar is a good bet depends heavily on the payrolls report,” Westpac’s Callow said. “The RBA’s view that the worst is probably over on the unemployment rate is unlikely to be challenged,” by Australia’s jobs data, he said.