Australia's Dollar May Head to Parity, Says Citigroup

By Candice Zachariahs

Sept. 24 (Bloomberg) -- Investors should buy the Australian dollar against the U.S. currency as the nation's high yields will make its assets attractive as the world's biggest economy slumps, said Citigroup Global Markets Inc.

Benchmark interest rates in Australia are 7 percent compared with 2 percent in the U.S. Gold, Australia's third most-valuable raw material export is seen as a safe haven and has rallied 6.3 percent this year.

``The Aussie stands out as the currency within the majors that potentially has the greatest benefit,'' said Tom Fitzpatrick, global currency head of strategy at Citigroup Global Markets Inc. in New York. ``We still believe we are likely to see the Aussie-U.S. get to parity.''

Fitzpatrick said in July 2007 the Canadian dollar could reach parity with the U.S. currency within two to three months. Canada's dollar reached the milestone in September 2007 for the first time in 31 years.

Investors should buy the Australian dollar at 83.81 U.S. cents with a target of 88 cents, analysts led by Fitzpatrick said in a note to investors dated yesterday. They should sell the currency if it falls to 82.30 cents, said Citigroup, the world's fourth-biggest currency trader.

Australia's currency slid 1 percent to 83.59 U.S. cents at 3:56 p.m. in Sydney, from 84.40 cents in late Asian trading yesterday.

Fitzpatrick expects the currency to reach 88 cents within weeks and strengthen to parity versus the U.S. dollar by early 2009.

``A lot of the difficulties that we see at this point are going to be predominantly in the U.S. and in Europe,'' he said.

The Australian currency has dropped 14.5 percent since reaching a 25-year high of 98.49 U.S. cents on July 16.

The country's interest rates make Australia a favorite for so-called carry trades where investors seek higher returns using funds from a country with low borrowing costs. The risk is exchange-rate fluctuations can erode profits.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net