Sell Australian Dollar on Commodities, Rate Outlook, ANZ Says

By Ron Harui

Jan. 9 (Bloomberg) -- Investors should sell Australia’s dollar as prices of commodities that the nation exports may fall and the central bank is likely to lower interest rates, according to Australia & New Zealand Banking Group Ltd.

The currency’s two-week rally makes an “ideal time” for Australian dollar sellers to put some hedges in place, analysts led by Amy Auster, Melbourne-based head of foreign exchange and international economics research at ANZ, wrote in a research note yesterday.

“ANZ projects further falls in commodity prices,” Auster and Amber Rabinov, an economist, wrote in the note. “The Australian dollar’s yield advantage should decline as the Reserve Bank of Australia continues to cut interest rates.”

The Australian dollar traded at 71.05 U.S. cents at 9:55 a.m. in Sydney from 70.14 cents late in Asia yesterday, when it reached 72.69 cents, the highest level since Oct. 8. The currency has rallied 4 percent since a one-week low of 67.62 cents on Dec. 24.

Australia’s fourth-largest bank predicts the local dollar will fall to 63 cents by the end of March and will weaken further to 54 cents by year-end, according to the note. The median forecasts of 39 analysts surveyed by Bloomberg News are for 62 cents and 66 cents, respectively.

The Reuters/Jeffries CRB Index of 19 raw materials fell for a second day, declining 1.2 percent yesterday. The Bloomberg UBS Constant Maturity Commodity Index of 26 components lost 1.8 percent.

Commodities including coal, iron ore, gold and oil account for 60 percent of Australia’s export revenue.

RBA Rate Bets

The benchmark interest rate in Australia is 4.25 percent, compared with 0.1 percent in Japan and as low as zero in the U.S., making the South Pacific nation an attractive destination for international investors seeking higher returns.

The Reserve Bank of Australia reduced the benchmark rate last year by three percentage points to a match a record low of 4.25 percent in the most aggressive monetary policy easing since a recession in 1991. The RBA started setting an interest-rate target in 1990.

Traders are betting the RBA will lower rates an additional 1.37 percentage points over the next 12 months, according to a Credit Suisse Group index based on interest-rate swaps.

To contact the reporter on this story: Ron Harui in Singapore rharui@bloomberg.net