Smart money likes high-yield Aussie’s robust economy

Rate Forecast

Barclays Plc and Credit Suisse Group AG are among forecasters saying the currency will drop below $1 this year as slowing mining investment damps growth. Gross domestic product will probably slow one percentage point to 2.6% this year, according to the median forecast of economists polled by Bloomberg News.

A National Australia Bank Ltd. business conditions gauge slumped to its weakest in almost four years, an April 9 report showed. The nation’s unemployment rate will rise to 5.75% this year, the bank said.

The jobless rate climbed to 5.6% in March, the highest since November 2009, a statistics bureau report showed today. The number of people employed fell by 36,100, almost five times more than economists forecast, the data showed.

To arrest the slowdown and support the economy as a record mining investment boom slows, the RBA will cut borrowing costs to a record low 2.75% in the third quarter, economists in a Bloomberg News survey estimate.

The RBA reduced rates by 1.75 percentage points since Nov. 1, 2011, to rebalance the economy away from mining and toward industries including construction and tourism.

‘Quality Place’

“There’s room to cut should that be necessary,” RBA Assistant Governor Christopher Kent said yesterday at the Bloomberg Summit.

Year-end forecasts for the Aussie range from Saxo Bank A/S’s 88 cents to $1.12 at Royal Bank of Canada, according to data compiled by Bloomberg.

“We’re hedged and we’ll stay that way until we see fundamentals change in a bigger way,” said Daniel Janis, a global fixed-income portfolio manager who helps oversee about $15.5 billion at Manulife Asset Management in Boston. “We like the quality of the government bonds because we don’t have to worry from a ratings standpoint, so it’s a quality place holder in our portfolio.”

Janis estimates the Aussie will trade in a range from parity to $1.06.

Offshore investors’ holdings of Australian sovereign debt swelled by A$23 billion to A$207 billion last year and foreign deposits in domestic banks rose to a record, official data show.

“The main theme is that China’s still got this diversification bid out there for the Australian dollar and that has limited declines in the currency above the parity level,” said Adrian Foster, the Hong Kong-based head of financial- markets research for Asia at Rabobank.

Rabobank, the most accurate firm at picking the Aussie over the past four quarters according to data compiled by Bloomberg, forecasts it will end the year at $1.06.

Bloomberg News

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