Financial experts at Suncorp see a possible fall in the Australian dollar by approximately 10% against the Japanese Yen this year, and the forecasted slow in economic growth and the central bank ending its rate increases doesn’t help much.
According to Suncorp, investors should consider selling Australian currency they might have now. According to Peter Pontikis, treasury strategist with Suncorp Metway, the Australian dollar will go as low as 85 yen, which is the lowest it has been since 96.
Peter Pontikis said, “For the next one or two quarters, the Aussie’s fundamentals will look very soggy,” as he believes that there has been a shift back in favor of the yen.
A government report recently showed the nations deficit as growing to a record high in February, and consumer confidence has recently dropped as well, this has caused Australia’s sixth largest bank to extend the year’s percent loss of 3.1% against the yen.
Financial analysts estimate that the currency will fall again in April after a report from the Reserve Bank of Australia put fort a statement that the inflation rate would fall back from a 16 year high, due to the economic growth slow down. This means that the central bank will probably not add to its four quarter point increase from last August.
The Credit Suisse Group index says that the current RBA will remain unchanged with its 7.25% benchmark interest rate, and will remain unchanged for the next 12 months.
The loss on the Australian dollar may not reach higher levels because of the belief that interest rates will still be able to interest investors, and that there will remain a global demand for the nations commodities, this being the consensus of the Macquarie Group Ltd, Australia’s largest publicly traded investment bank. According to Joanne Masters, a currency strategist for Macquarie, “The Australian dollar “is one of the standout investments in terms of currency markets,'” “We expect continued outperformance against the crosses.”
Australia’s 6.75% interest rate has made it a sturdy carry trade. A carry trade is where investors by funds in a country that has low borrowing costs and then invest in one with higher interest rates, but the risk they take is that when the currency market fluctuates by too much those profits will be gone.
Still, Pontikis from Suncorp-Metway says that the Australian currency has been very volatile for the last year and believes that it will continue to weaken against the yen. Investors are now discouraged from carry trades, because of the currency fluctuation. Pontikis has said, “You don't buy and hold the Aussie-yen any more, that world ended the middle of last year when you had 20-figure moves up and down, and that carried through into this quarter.”
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