Via Bloomie:
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 drop to 67 US cents in 2018 before retreating further to 65 US 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.
As Australia’s yield premium to the US. evaporates and becomes a discount, the currency will break its correlation with emerging-market peers, he said. 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 said. “It is no longer going to work like this. We are going to see that break simply because there is no yield.”
“When I have a forecast of 65 cents, that is not very ambitious,” Redeker said in an interview in Singapore.
Indeed. I think it will go much lower as the yield spread inverts and the terms of trade resume falling as China slows. 65 cents looks good for next year. 55 cents the year after, though the risk to that is another round of Chinese credit splurging. And I still see post-float lows when the end-of-cycle shock arrives.
David Llewellyn-Smith is chief strategist at the MB Fund which is currently long international equities that benefit from a falling AUD so he is definitely talking his book.
Here’s the recent fund performance:
Source: Linear, Factset
The returns above include fees and trading costs on a $500,000 portfolio. Note that individual client performance will vary based on the amount invested, ethical overlays and the date of purchase. The benchmark returns do not include fees. October monthly returns are currently at 4.9% for international and 4.2% for local shares.
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The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. The MB Fund is a partnership with Nucleus Wealth Management, a Corporate Authorised Representative of Integrity Private Wealth Pty Ltd, AFSL 436298.
