Aussie to Remain Strong Until U.S. Fed Tapers, ANZ Bank CEO Says

Australia & New Zealand Banking Group Ltd. Chief Executive Officer Michael Smith said he expects the Australian dollar to maintain its strength as long as the U.S. Federal Reserve keeps up its bond-buying program.

“It’s unlikely we’ll see a huge reduction or a major reduction in the Aussie dollar’s strength until there is a tapering in the U.S.,” Smith said in an interview yesterday on the Australian Broadcasting Corp.’s Inside Business program. “As the U.S. dollar strengthens, we’ll start to see the Aussie come off a bit.”

The Federal Reserve decided last week it would press on with $85 billion in monthly bond purchases, saying that it needs to see more evidence the U.S. economy will continue to improve. The central bank also said the economy is showing signs of “underlying strength.”

While the Australian dollar fell to a three-year low of

88.48 U.S. cents on Aug. 5 amid speculation the Fed would begin to taper bond purchases by year end, that sentiment reversed as a government shutdown in the U.S. slowed growth, prompting the Aussie to touch an almost five-month high of 97.58 on Oct. 23. The Aussie closed at 94.38 U.S. cents on Nov. 1.

Reserve Bank of Australia Governor Glenn Stevens said last week the Aussie dollar “at some point in the future” will be “materially lower.”

Credit Standards

Tapering of the Fed’s record stimulus will begin in March, based on the median estimate of economists in a Bloomberg survey.

“I don’t think the tapering will happen until well into next year,” Smith said. “It will create some volatility. There will be adjustment.”

ANZ, the country’s third-largest lender by market value, has maintained its credit standards, Smith said. Charges for bad debts in the last year fell 5 percent to A$1.2 billion from a year ago and newly impaired assets in the year dropped 22 percent, ANZ said Oct. 29.

“We haven’t lowered our standards,” Smith said. “In fact, I think over the last few years we’ve maintained credit standards very well.”

In a separate interview with the Financial Review Sunday television program that was broadcast yesterday, Smith said Australia should encourage more investment from overseas.

“There has been a lot of noise about China and Indonesia,” he said. “The fact is, we should be welcoming inward investment because it goes where it is welcome. At the end of the day we need it. We can’t realize our potential unless we have it.”

Warrnambool, GrainCorp

Saputo Inc., Canada’s largest dairy processor, would need clearance from Australia’s Foreign Investment Review Board if it is the successful bidder for Warrnambool Cheese & Butter Factory Co. Japan’s Kirin Holdings Co. last week bought about 10 percent of Warrnambool, and local company Bega Cheese Ltd. has received an OK from the country’s competition regulator for its bid.

Decatur, Illinois-based Archer-Daniels-Midland Co.’s planned purchase of Australian crop handler GrainCorp Ltd. would be a loss for the South Pacific country, Deputy Prime Minister Warren Truss told the ABC in an interview yesterday. It’s important for Australia to “maintain control of its own food security,” Truss said.

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