Teh One Who Knocks
11-21-2017, 08:05 PM
By Netty Idayu Ismail - Bloomberg
https://i.imgur.com/EaVPp7Ll.jpg
Australia’s dollar is set to fall to the weakest since the aftermath of the global financial crisis in 2009 as it loses its standing as a high-yielding currency, according to Morgan Stanley.
The Aussie will probably drop to 65 U.S. cents in 2019 as the nation’s benchmark rate will eventually go below the Federal Reserve’s, said Hans Redeker, the London-based chief global currency strategist at Morgan Stanley, the most bearish forecaster of the currency. Australia’s two-year yield advantage over the U.S. has almost vanished, shrinking to just 2 basis points Tuesday.
As Australia’s yield premium evaporates and becomes a discount, the currency will break its correlation with emerging-market peers, Redeker said in an interview in Singapore last week. The Aussie will underperform as developing-nation currencies continue to attract investors with “super attractive” real yields, he said.
“In the past, when emerging markets were doing well, people were buying the Australian dollar,” Redeker. “It is no longer going to work like this. We are going to see that break simply because there is no yield.”
The extra yield on Australia’s 10-year bonds over similar-maturity Treasuries was at 19 basis points Tuesday, after falling to a 16-year low of 15 basis points in June. The last time the spread was consistently this narrow was in 2001, when the Aussie slid to 47.76 cents, the weakest since being allowed to float freely in 1983.
“When I have a forecast of 65 cents, that is not very ambitious,” Redeker said.
Morgan Stanley predicts the Aussie will decline to 67 cents by the end of next year, making it the most pessimistic forecaster of the currency in a Bloomberg survey of more than 30 analysts. The median estimate is 80 cents.
The Aussie has slumped 1.5 percent this month to 75.43 cents Tuesday, the worst-performing major currency. Swaps traders have been pushing back expectations for when the Reserve Bank of Australia will tighten. They now predict a move in September, instead of the first half of 2018, after recent economic data including inflation fell short of forecasts.
Australia’s central bank isn’t likely to raise interest rates from a record low in the near futures, according to minutes from this month’s policy meeting released Tuesday. There’s “considerable uncertainty” around when and how quickly wage pressures might emerge and about how much these would add to inflationary pressure, the minutes showed.
The Fed, in contrast, will raise rates in December and three more times next year, Morgan Stanley predicts.
Hedge funds and other large speculators cut their Aussie long positions to 51,435 contracts in the week ended Nov. 14, from a four-year high of 86,204 at the end of August, data from the Commodity Futures Trading Commission showed.
“There is still scope for an unwind,” said Peter Dragicevich, a currency strategist at Nomura Holdings Inc. in Singapore. “The domestic developments, particularly on the wage and CPI front, reinforce our expectation that the RBA is on hold for some time.”
https://i.imgur.com/EaVPp7Ll.jpg
Australia’s dollar is set to fall to the weakest since the aftermath of the global financial crisis in 2009 as it loses its standing as a high-yielding currency, according to Morgan Stanley.
The Aussie will probably drop to 65 U.S. cents in 2019 as the nation’s benchmark rate will eventually go below the Federal Reserve’s, said Hans Redeker, the London-based chief global currency strategist at Morgan Stanley, the most bearish forecaster of the currency. Australia’s two-year yield advantage over the U.S. has almost vanished, shrinking to just 2 basis points Tuesday.
As Australia’s yield premium evaporates and becomes a discount, the currency will break its correlation with emerging-market peers, Redeker said in an interview in Singapore last week. The Aussie will underperform as developing-nation currencies continue to attract investors with “super attractive” real yields, he said.
“In the past, when emerging markets were doing well, people were buying the Australian dollar,” Redeker. “It is no longer going to work like this. We are going to see that break simply because there is no yield.”
The extra yield on Australia’s 10-year bonds over similar-maturity Treasuries was at 19 basis points Tuesday, after falling to a 16-year low of 15 basis points in June. The last time the spread was consistently this narrow was in 2001, when the Aussie slid to 47.76 cents, the weakest since being allowed to float freely in 1983.
“When I have a forecast of 65 cents, that is not very ambitious,” Redeker said.
Morgan Stanley predicts the Aussie will decline to 67 cents by the end of next year, making it the most pessimistic forecaster of the currency in a Bloomberg survey of more than 30 analysts. The median estimate is 80 cents.
The Aussie has slumped 1.5 percent this month to 75.43 cents Tuesday, the worst-performing major currency. Swaps traders have been pushing back expectations for when the Reserve Bank of Australia will tighten. They now predict a move in September, instead of the first half of 2018, after recent economic data including inflation fell short of forecasts.
Australia’s central bank isn’t likely to raise interest rates from a record low in the near futures, according to minutes from this month’s policy meeting released Tuesday. There’s “considerable uncertainty” around when and how quickly wage pressures might emerge and about how much these would add to inflationary pressure, the minutes showed.
The Fed, in contrast, will raise rates in December and three more times next year, Morgan Stanley predicts.
Hedge funds and other large speculators cut their Aussie long positions to 51,435 contracts in the week ended Nov. 14, from a four-year high of 86,204 at the end of August, data from the Commodity Futures Trading Commission showed.
“There is still scope for an unwind,” said Peter Dragicevich, a currency strategist at Nomura Holdings Inc. in Singapore. “The domestic developments, particularly on the wage and CPI front, reinforce our expectation that the RBA is on hold for some time.”