Aussie Expensive Kokusai?s Horii said the real effective exchange rate, a measure of the currency?s value that accounts for inflation in the nation, shows the Australian currency is expensive. The gauge climbed to 154.4 in February, within 1 percent of a record, based on JPMorgan Chase & Co. figures.
The difference between yields on Australian government bonds and inflation-indexed notes shows investors expect consumer prices will rise an annual 2.92 percent for the next five years, the fastest among eight developed nations tracked by Bloomberg. The RBA aims to keep average annual inflation between 2 and 3 percent.
The cost to protect against a default on Australian government bonds using credit-default swaps climbed to 53.8 basis points from 44.6 basis points six months ago, according to CMA prices in New York. The cost for U.S. credit-default swaps was little changed at 43.1, compared with 41.5 on Dec. 31.
Australia?s currency will weaken as the Fed ends its Treasury purchases and raises interest rates, said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia, the nation?s largest lender by market capitalization. The currency will drop to 92 U.S. cents by year-end, he said.
The Fed said in November it planned to buy $600 billion of Treasuries by June 30 to boost the U.S. recovery.
Australia?s dollar declined 6.1 percent in 2005 when the Fed increased its target to 4.25 percent from 2.25 percent, and it will weaken again when the U.S. starts raising borrowing costs, said Hideo Shimomura, who helps oversee the equivalent of $60.9 as chief fund investor in Tokyo at Mitsubishi UFJ Asset Management Co., a unit of Japan?s biggest bank.
?When the Fed starts to tighten the Aussie suffers,? Shimomura said. ?It?s not our favorite.? The currency will fall to 90 U.S. cents by year-end, he said
