- MST Capital's macro fund has gained 10% in the past 12 months
- Kiwi, Aussie down most in 2015 among G-10, reaching 6-year low
The rout in Australia and New Zealand’s dollars that sent them tumbling to six year lows is approaching an end, according to MST Capital, a Sydney-based hedge fund which profited from bearish bets on the currencies.
The prospect of higher interest rates in the U.S. has seen the Aussie and the kiwi underperform their developed-market peers this year. A gradual pace in tightening by the Federal Reserve could ease the pressure on the currencies of both South Pacific nations, according to MST Capital, run by former UBS Group AG trader Gerard Satur.
“Once the Fed starts to raise rates -- most likely in October or December -- they will convince the market this rate-rise cycle will be very gradual and the U.S. dollar will weaken,” the manager said in an e-mail.
MST Capital correctly predicted last year that slowing growth in China would weigh on the Aussie and kiwi. Satur said in November that investors were “too complacent” about the world’s second-largest economy. The central banks of Australia and New Zealand cut interest rates this year to support growth as prices of their commodity exports plunged.
The fund gained 1.4 percent during the market rout last month, bringing its return over the past 12 months after fees to 10 percent, according to the firm.
Australia’s dollar tumbled as much as 0.8 percent Friday to 69.59 U.S. cents, the weakest since April 2009. It bought 69.65 cents at 2:37 p.m. in Sydney.
“There is still some downside left in the Aussie, but the big move has been had,” MST Capital said in the e-mail. “We do hold some optionality for another downdraft, but think that one more move in to the mid-to-upper 60’s will finish this leg.”
The Reserve Bank of Australia will probably cut its key interest rate in either November or December, according to the manager, following reductions in May and February. Swaps prices suggest a 60 percent chance Australia’s central bank will reduce its main rate from a record-low 2 percent by the end of this year, data compiled by Bloomberg show.
New Zealand’s currency dropped 0.7 percent to 63.56 U.S. cents. It reached 61.30 cents last month, the weakest level since May 2009. The kiwi will probably hit a trough around 60 cents, MST Capital said.
“Like our view on Aussie, we think the down move is towards the end,” it said.
Another shock to financial markets around the world could extend the sell-off in both currencies, however, according to the manager.
China’s surprise devaluation last month triggered a global market rout and cast doubts on the timing of the Fed’s first interest-rate increase in almost a decade.
Fed Chair Janet Yellen said in July she expected the central bank to raise its benchmark rate this year, while emphasizing the pace of tightening will probably be gradual. The probability that futures traders assign to a Fed rate increase this month slid to 30 percent as of Friday, from 50 percent on Aug. 4, based on the assumption that the effective Fed funds rate will average 0.375 percent after the first increase.