By Enda Curran The Aussie dollar is finding out who its friends are.
After the halcyon days of 2011 and 2012 when the high-yielding currency appeared to shed its role as a global risk proxy for one as a minor reserve asset, the Aussie is reverting to its status as a whipping boy for traders.
From London to Sydney analysts are rushing to tell clients that the Aussie, the world’s fourth-most traded currency, has only just begun its downward spiral. Not content with a 6% sell off against the greenback since the start of May, bearish analysts argue that a recovering U.S. economy, falling interest rates in Australia and a slowing China bode ill for the trades that fueled the Aussie’s ascent.
Australian one-hundred dollar banknotes are arranged for a photograph in Sydney, Australia. —Bloomberg News In the view of Stephen Jen, a partner at London-based SLJ Macro Partners, the Aussie dollar ranks alongside emerging market currencies as being in “grave danger” of a big correction lower.
“If China decelerates, the ‘truth will be revealed,” he says in a note to clients.
Mr. Jen is far from alone. One of Sydney’s best known brokers, Bell Potter’s Charlie Aitken, also chimed in Wednesday. He believes his year end target of US$0.9200 will be hit very quickly and give way to a level somewhere above US$0.8000.
But Mr. Aitken goes further. He is calling a rout and warned that pricking the Aussie dollar bubble won’t be pretty to watch.
“The Australian dollar has been one of the most obvious bubbles in the financial world,” he argues in a note. “I remain of the view that this Australian dollar correction will get disorderly.”
All this comes a day after Australia’s central bank said the currency remains too strong when holding rates steady at a record low 2.75%, while warning it could cut further.
“The exchange rate has depreciated since the previous board meeting, although, as the board has noted for some time, it remains high considering the decline in export prices that has taken place over the past year and a half,” Glenn Stevens, the Reserve Bank of Australia’s governor, said in a statement.
Deutsche Bank DBK.XE -2.41%, the global FX ‘flows monster’, said those remarks were “worthy of note.” Some of the world’s other major investment banks, including Goldman Sachs GS -2.09% and UBS UBSN.VX -2.28%, are increasingly confident the Aussie remains a sell.
“The message is clear, the Reserve Bank of Australia would like to see more and more prolonged currency weakness,” said Todd Elmer, Citi’s head of G10 FX Strategy for Asia, excluding Japan.
For a currency that last week had the ignominy of being compared with the Syrian pound, the Aussie dollar’s moment in the sun is fading. Fast.
CSD Price at posting:
5.0¢ Sentiment: Buy Disclosure: Held
