Business Maverick

Business Maverick

Buying Australian dollars is a phenomenal trade, UBS says

Buying Australian dollars is a phenomenal trade, UBS says
An Australian one hundred dollar banknote is arranged for a photograph in Sydney, Australia, on Wednesday, May 23, 2018. Australia's central bank chief Philip Lowe said last week that his nation and China together can be a force supportive of an open global trading system. Photographer: Brendon Thorne/Bloomberg

A slowing US economy and brisk growth in Australia will trigger a rally in the Australian dollar to levels last seen more than a year ago, UBS Group AG’s head of currencies in Asia said.

After rebounding from a two-year low set last month, the Aussie could rise 11% from that level to as high as 76 US cents by the end of December. The Swiss bank sees potential for the currency to climb to 78 US cents by the end of the first quarter next year.

“The one trade I would love to do is being long on the Australian dollar – I still think it’s a phenomenal trade,” said Dominic Schnider, head of commodities and Asia Pacific currencies at the bank. “Once we see that the US slows a little bit and the Australian economy just doing very well and brimming along, people will suddenly say that it shouldn’t trade where it is.”
The Aussie could get a further lift from commodity prices, slower US growth

Australia’s economy expanded faster than estimated last quarter, which has bolstered the central bank’s case for raising interest rates by 40 basis points at its meeting on Tuesday, swaps prices show. The country, an exporter of wheat, could also benefit from uncertainty over supply of the grain from Ukraine and India, and from a rebound in iron ore prices as China loosens its Covid restrictions.

The Aussie held steady at 72.08 US cents in early Asia trading on Monday.

Foreign-exchange analysts, expecting a resurgence of risk-taking, are ramping up bets on the Aussie as rallies in haven currencies lose steam. The Aussie is the second best-performing among its Group-of-10 peers so far this year, after the Canadian dollar.

Global investors are growing increasingly jittery as markets navigate a world of rising interest rates, soaring inflation and the impact of China’s Covid-zero policies on the world economy. Some are also on edge over whether the Federal Reserve’s tighter policies will cause a recession.

In an environment where possibly too many interest rate hikes have been priced in and investors look to pare back some expectations, the least pricing out will happen in commodity-linked economies, which gives them an edge, Schnider said. BM

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