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12-07-2013, 09:32 PM
Mine-linked money faces new falls, say analysts
BY:ERIN MCCARTHY From: Dow Jones July 12, 2013 1:44PM
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COMMODITY-LINKED currencies like the Australian dollar remain susceptible to further losses as markets are still fretting over the prospect of less Federal Reserve stimulus, Societe Generale said.
The Australian and Canadian dollars have slumped in recent weeks on the back of commodity weakness spurred by Fed signals that it could taper its asset purchases later this year.
Years of the Fed's ultralow rates and easy-money policies had previously led to investors snapping up higher-yielding assets, including commodities and the currencies that tend to trade in line with them.
But now, the change in Fed outlook has set these currencies on a more uncertain course that requires, above all things, a "vigilant" approach, said Carl Forcheski, director on the Societe Generale corporate-foreign-exchange sales desk.
"These currencies overall remain vulnerable," he said.
For instance, he warns the right time to buy the Australian dollar might not have yet arrived, given ongoing market uncertainty.
Ultimately, the fate of currencies linked to commodities such as oil, gas and gold depends upon the global economy, he said. A faster-growing world economy may help trump the outflows from these assets spurred by the perceived Fed policy shift, he said.
"If we do get a return to global economic growth--global being the key there--then we'll probably see some return in interest...to commodity currencies," he added.
The Aussie weakened today after China's finance minister Lou Jiwei signalled the world's second biggest economy was likely to grow at a slower pace than previously forecast.
At noon AEST on Friday, the local unit was trading at 91.68 US cents, down from 92.71 cents at yesterday’s local close.
The currency was already weaker when Mr Lou said a 6.5 per cent Chinese growth pace wouldn't be a “big problem”, as he forecast a 7 per cent average expansion in 2013. The level he quoted in Washington, on the sidelines of a US-China summit, is lower than the Chinese government's 2013 target of 7.5 per cent, given in March.
But Commonwealth Bank currency strategist Joseph Capurso said the comments only had a moderate effect on the Australian dollar, following recent forecasts from the International Monetary Fund.
“The IMF ... many other private sector economists have downgraded their China forecasts, so it's not a lot of new news,'' he said.
Mr Capurso expects the dollar to “fall back quickly” to 91 US cents, adding that the market had “overreacted” to the Fed’s commitment to continue its monetary stimulus. By Monday the dollar will be trading lower, he said.
Traders also today overlooked housing finance data showing a 1.8 per cent increase in May, when interest rates were cut to a record low of 2.75 per cent. The level was lower than economists' predictions of a 2.2 per cent rise.
Still, the Reserve Bank of Australia pays more attention to labour force data and inflation.
The Australian dollar fell below 92 US cents during offshore trade, reversing yesterday’s gains that were based on market interpretations of US Federal Reserve chairman Ben Bernanke's comments on loose monetary policy.
Additional reporting: Business Spectator and AAP
BY:ERIN MCCARTHY From: Dow Jones July 12, 2013 1:44PM
Increase Text Size
Decrease Text Size
COMMODITY-LINKED currencies like the Australian dollar remain susceptible to further losses as markets are still fretting over the prospect of less Federal Reserve stimulus, Societe Generale said.
The Australian and Canadian dollars have slumped in recent weeks on the back of commodity weakness spurred by Fed signals that it could taper its asset purchases later this year.
Years of the Fed's ultralow rates and easy-money policies had previously led to investors snapping up higher-yielding assets, including commodities and the currencies that tend to trade in line with them.
But now, the change in Fed outlook has set these currencies on a more uncertain course that requires, above all things, a "vigilant" approach, said Carl Forcheski, director on the Societe Generale corporate-foreign-exchange sales desk.
"These currencies overall remain vulnerable," he said.
For instance, he warns the right time to buy the Australian dollar might not have yet arrived, given ongoing market uncertainty.
Ultimately, the fate of currencies linked to commodities such as oil, gas and gold depends upon the global economy, he said. A faster-growing world economy may help trump the outflows from these assets spurred by the perceived Fed policy shift, he said.
"If we do get a return to global economic growth--global being the key there--then we'll probably see some return in interest...to commodity currencies," he added.
The Aussie weakened today after China's finance minister Lou Jiwei signalled the world's second biggest economy was likely to grow at a slower pace than previously forecast.
At noon AEST on Friday, the local unit was trading at 91.68 US cents, down from 92.71 cents at yesterday’s local close.
The currency was already weaker when Mr Lou said a 6.5 per cent Chinese growth pace wouldn't be a “big problem”, as he forecast a 7 per cent average expansion in 2013. The level he quoted in Washington, on the sidelines of a US-China summit, is lower than the Chinese government's 2013 target of 7.5 per cent, given in March.
But Commonwealth Bank currency strategist Joseph Capurso said the comments only had a moderate effect on the Australian dollar, following recent forecasts from the International Monetary Fund.
“The IMF ... many other private sector economists have downgraded their China forecasts, so it's not a lot of new news,'' he said.
Mr Capurso expects the dollar to “fall back quickly” to 91 US cents, adding that the market had “overreacted” to the Fed’s commitment to continue its monetary stimulus. By Monday the dollar will be trading lower, he said.
Traders also today overlooked housing finance data showing a 1.8 per cent increase in May, when interest rates were cut to a record low of 2.75 per cent. The level was lower than economists' predictions of a 2.2 per cent rise.
Still, the Reserve Bank of Australia pays more attention to labour force data and inflation.
The Australian dollar fell below 92 US cents during offshore trade, reversing yesterday’s gains that were based on market interpretations of US Federal Reserve chairman Ben Bernanke's comments on loose monetary policy.
Additional reporting: Business Spectator and AAP