Via Bloomie:
The Aussie is poised to go into reverse as the Federal Reserve keeps raising interest rates, while the Reserve Bank of Australia leaves borrowing costs at a record low, said James Athey at Aberdeen Standard Investments in London, who is adding to his short positions. Schroder Investment Management Australia Ltd., which is also short, said the Aussie is likely to trade closer to 70 U.S. cents than 80 cents in 12 months.
…“For now, it is tough to fight,” said Athey, a senior investment manager at Aberdeen, which oversees about $810 billion. “But in the medium term, the Australian economy does not welcome a stronger Australian dollar. Plus, I expect commodity prices to moderate.”
…“The move up toward 80 cents has largely been driven by U.S. dollar weakness rather than Aussie dollar strength,” said Simon Doyle, Sydney-based head of fixed income and multi-asset at Schroder, which oversees about $540 billion. “We don’t see that as being something which is sustainable.”
Options traders are the most bearish on the Aussie among developed-market currencies, six-month risk reversals show. The premium investors paid for options giving the right to sell the Aussie versus the U.S. dollar, over those to buy, was about 50 basis points. Still, the gauge of bearishness has dropped from 165 basis points a year ago.
“The backdrop remains unproductive for sustained appreciation of the Australian dollar above 80 cents,” said Paresh Upadhyaya, a portfolio manager at Amundi Pioneer in Boston. “There are three key headwinds facing the Aussie battler: falling iron-ore prices, a gradual but discernible deceleration in Chinese growth and widening interest-rate differentials in favor of the U.S. dollar.”
It’s only a matter of time before the Aussie drops below 70 cents, according to Tony Bradley, a partner at hedge fund Hunter Burton Capital in Sydney.
“As the Fed hikes and U.S. rates overtake Australia’s, it will put pressure on the Aussie dollar, but the RBA doesn’t care,” Bradley said . “I am short and hope to be able to stay short for most of the year.”
All familiar arguments and right in my view. But not until the USD crash eases off.
