by Chris Becker
The Aussie dollar bears are coming out of the woodwork after the battlers decline from ca. 95c to just above 87c recently. A major fund has given more weight for more jawboning from the RBA Governor to help their own call.
From Fairfax:
Aussie dollar to go to 75c: That’s the opinion of Thomas Clarke, a portfolio manager and asset allocation specialist based in the London office of $62 billion funds management house William Blair & Company.
The efforts of Reserve Bank of Australia governor Glenn Stevens to “jawbone” the dollar lower are reassuring, the fund manager said.
“From the perspective of an overseas investor it is great to see a central bank governor come out and call a spade a spade,” Mr Clarke said.
“When Mr Stevens goes on record saying the RBA thinks the dollar is overvalued, and not just a little bit, that is a nice confirmation of our strategy.”
Fair value on the Aussie dollar is somewhere between US74¢ to US75¢, but given the push and pull of diverging global interest rates and the slowdown in China it is very difficult to pick when it will get there, Mr Clarke said.
For what its worth I think any further falls will hang around the 80-81 cent region first, and the timeline to further falls is clouded by the inevitable tradeable inflation such a result would entail, and the risk the RBA will keep the foot of the rates pedal. This should keep the carry trade intact for sometime, as paltry as 2.5% sounds to the Australian saver, its still many basis points above other developed economies ZIRP or even NIRP rates.
More on why the Aussie has been so expensive for so long:
He said Australia’s currency had been artificially elevated for a number of years as the US Federal Reserve’s quantitative easing program has been flooding global markets with liquidity. Those central bank asset purchases have been tapered since late 2013 and are expected to conclude this month.
“Despite its recent falls the Australian dollar is still over-valued against the benchmark US dollar, but the Aussie is even more expensive when measured against a batch of Asian currencies,” he said.
I would add its been a reluctant, even recalcitrant RBA to not talk the currency down and give itself some more ammunition in the uncertain years ahead of the end of the mining boom. The shock to national income would have been a lot better delivered at a sub-parity dollar these last couple of years.
And of course, they are short:
The William Blair macro allocation fund, a multi-asset strategy that Mr Clarke co-heads, has a big short on the Aussie dollar.
“In addition to our strong conviction the Australian dollar will eventually fall, shorting it also diversifies the portfolio against the risk of US and European equities falling,” Mr Clarke said.
Indeed. Being short Aussie (or long USD, a position I know many readers and colleagues of mine have adopted for their portfolio – hi Tim!) has been a great hedge for the last couple of years – and may translate into some sizeable performance in the months or even years ahead.