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Australian Dollar May Hit Record Low, Strategist Says (Update2)

By Candice Zachariahs

Oct. 30 (Bloomberg) -- The Australian dollar may fall to a record low next year, possibly dipping below 40 U.S. cents for the first time, as slowing growth in emerging markets cools demand for the raw materials exported by the nation.

The currency, known as the Aussie, has dropped 31 percent since reaching a 25-year high of 98.49 U.S. cents on July 16, sliding as prices of crude oil, gold and nickel declined. It reached 47.75 cents in April 2001, the lowest since it started trading freely in 1983.

``I can see it certainly dropping quite sharply from here,'' Carlin Doyle, a London-based currency strategist at State Street Global Markets said in a telephone interview. The Australian dollar could fall ``below the 40 cent level and I can see that happening in the next year or so,'' he added.

The forecast is based on the assumption that the current pace of dollar repatriation will continue as investors sell emerging-market assets around the world, causing the U.S. currency to overshoot by as much as 30 percent, according to State Street.

Australia's currency was at 68.00 cents at 1:39 p.m. in London today, from 66.80 cents yesterday.

The currency advanced to its July high as surging commodities prices and a benchmark interest rate of 7.25 percent helped attract investment. It has been the worst performer of the 16 most-traded currencies against the dollar and yen over the past 3 months as a seizure in credit markets fueled concern the global economy is headed for a recession.

Commodity Exports

Commodities account for about 60 percent of Australia's exports and the Reuters/Jefferies CRB Index of 19 raw materials has fallen 42 percent since closing at a record high on July 2.

``Because the Aussie dollar is liquid, the punishment for emerging markets undergoing a crisis will be paid through the Aussie dollar,'' Doyle said. ``It's like a contagion.''

Since September the Reserve Bank of Australia has reduced borrowing costs to 6 percent to boost the slowing economy. Traders are betting that the central bank will cut its benchmark rate by 136 basis points over the next 12 months, according to a Credit Suisse index based on overnight swaps. A basis point is 0.01 percentage point.

To contact the reporter on this story: Candice Zachariahs in Sydney at [email protected]