Posts Tagged The Australian Dollar

The Aussie has had such an incredible evaluation in the last year that I openly am concerned about buying in at 93 US cents per Aussie dollar. Nevertheless, the signs continue to support the argument that the Aussie dollar will either stay where it is or continue to appreciate a bit. The reasons are several. Firsty, the export machine of materials to China support strong macroeconomic fundamentals such as reserves, tax receipts and current accounts. That supports currencies which is why the commodity currencies such as the Canadian dollar, the Swedish and Norwegian Krona have done well. Secondly, Australia’s inflation rate for the three months to the end of March rose to 2.9% from 2.1% for the last quarter of 2009. This means a rising interest rate environment will continue to draw money looking for the “carry trade”, which is exactly what our clients are doing. We take USD that is earning 1 tenth of 1 percent or 10 basis points and place in Aussie that is getting 4.32%. Big difference! Many clients called me today concerned about Euro cash positions or Euro denominated assets. Our Euro positions tend to be relatively small since the tendency will be for the Euro to stay flat or weak in the near future. However, our primary goal with buying competing hard currencies is to hedge them against eachother to protect the mechanism of cash to store value that is waiting to be invested in equity…not to speculate in foreign exchange.

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Most CR Capital clients have positions in the Aussie Dollar. The carry trade out of 20 basis point dollar into high yield cash opf 3.65  in Aussies is a smart play. It also appears that the currency will hold parity or evaluate even more against the USD. Again, we do not speculate in currencies but hedge them against eachother to protect the value of cash that is sitting on the sidelines.  It is still nice to have the extra income though.  FT, Australia’s central bank underlined its determination to reduce monetary stimulus on Tuesday when it lifted its benchmark interest rate from 4 to 4.25 per cent, its fifth such rise since October. In an upbeat assessment of the country’s outlook, the Reserve Bank of Australia indicated growth this year would be around a trend of 3.25 to 3.5 per cent and inflation during the same period would be close to its 2 to 3 per cent target range. ”The board judges that, with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process,” the central bank said in a statement. It also pointed to a boost in the terms of trade following increases in iron ore and coal prices. This should be good news for the Australian dollar.

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I was just reading FT Expert, David Bloom’s comments about the Aussie Dollar. Many of our client’s have taken a significant position in the AUD, which pays 3.5% on cash, but we are watching it. CR Capital does not recommend “currency trading”; however, we are sensitive to the possiblity of significant volatility in currencies which is a relatively new phenomena. Bloom says,
” The Australian dollar is our favourite G10 currency, and we see further appreciation throughout the year, with our AUD-USD forecast at parity for the end of 2010. Having weathered the storm of the global economic crisis, Australia appears to have come out the other side largely unscathed. Furthermore, it was the only G10 country to have three consecutive interest rate rises in 2009, and a further rate hike at their meeting in February.

Australia will continue to feel the benefits of China’s growth and expansion throughout 2010 as commodity prices are pushed up and Australia’s terms of trade improve. Economic data releases have also been particularly strong, with consistent large upside surprises in employment data. These two factors, combined with further rate rises, should see the Aussie strengthen.

Since we forecast appreciations in both the Australian dollar and sterling this year, we do not expect much movement in AUD-GBP. We see AUD-GBP at £0.59 for Q1 this year, but remaining at £0.58 for the rest of the year and into 2011. However, we are much more confident about our bullish Australian dollar view, so if we were to see one of the currencies appreciate against the other, it would be the Aussie against sterling, and therefore 65p could not be ruled out.”

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Private Banking

Australia was the first rich country to emerge from the great recession. The Australian government just raised the central banks benchmark interest rate to 4% to head off inflation. Remember, Australia is in Asia- the region of growth. The Aussie dollar has ralled from 63 cents to 91 cents against the US dollar as well. Aussie dollar cash positions also pay a significantly higher interest rate too!  3.5%Compare that to the 20 basis points the US Dollar is paying.

Again, CR Investment advisors does not recommend that our client’s speculate in currency trading.  Short term currency movements are unpredictable.  We do recommend that they diversify their cash positions in various hard currencies.  The Australian dollar is one of them.

NY Times just reported that… Australia raised interest rates on Tuesday for the fourth time since October, in a widely anticipated move that showed that the central bank remains confident in the country’s rebound despite still-difficult international credit conditions and lingering concerns about the debt levels of several European countries.

The Reserve Bank of Australia raised its key cash rate by a quarter of a percentage point to 4 percent, taking the total amount of rate increases since Oct. 7 to 1 percentage point.

Many of our clients have diversified away from US dollar by buying Australian Dollar, which pays a signficantly higher interest rate on cash. The Aussie dollar has evaluated a lot against the US dollar as well from 63 cents to 90 cents. We will closely follow developments regarding the Australian currency.
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