Sell Aussie Dollar as China's Economy Weakens, RBC Capital Says

By Garfield Reynolds

Oct. 28 (Bloomberg) -- Investors should sell the Australian dollar against the greenback as the currency is likely to extend this year's record declines because a weaker Chinese economy will sap demand for raw materials, RBC Capital Markets said.

The Aussie, as the currency is also known, may weaken below 60 U.S. cents, adding to its plunge from a 25-year high of 98.49 cents on July 16, RBC analysts said in a report. The Australian dollar touched a five-year low of 60.09 U.S. cents today and traded at 60.19 cents as of 9:17 a.m. in Sydney.

``The major driver of the Australian dollar's 31.3 percent decline over the past three months has been the collapse in resource commodity prices,'' Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney, wrote in the report.

Australia's currency is the worst-performer of the world's 16 most-active currencies against the dollar and yen in the past month as investors have dumped equities amid widespread concern that the global economy will fall into recession. Australia's 17-year economic boom has been fueled by raw materials sales, which account for 70 percent of the country's exports.

RBC recommends selling the Australian dollar when it trades at less than 63.36 cents, targeting a decline to 55 U.S. cents. They should exit the bet if the currency strengthens to 67.9 U.S. cents, RBC said.

China's economic growth may slow to 8 percent in the fourth quarter, after growing by a weaker-than expected 9 percent in the three months ended Sept. 30, ``exerting further downward pressure on commodities prices,'' Trinh wrote.

Symmetrical Triangle

The Reuters/Jefferies CRB Index of 19 raw materials tumbled 28 percent this year as investors have fled commodities on concern a looming global recession may diminish demand for crude oil and for industrial metals such as copper, nickel and aluminum.

Financial turmoil and declining commodity prices have pushed down the Aussie to create what may be a symmetrical triangle pattern, indicating a decline to at least 57.07 cents is likely, RBC Capital said, citing technical analysis.

Goldman Sachs Inc. analysts said yesterday in a note that the Australian dollar's decline to 63.3 U.S. cents may indicate a drop to 47.75 cents in the longer term, also citing technical analysis.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast price changes in a security, commodity, currency or index.

To contact the reporter on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net