Japan Inventory Signals Australia Dollar to Slide: Chart of Day

By Candice Zachariahs

Feb. 9 (Bloomberg) -- The Australian dollar may slip below 60 U.S. cents to the weakest in almost six years as inventory stocks build to a record in Japan, the biggest buyer of the South Pacific nation’s exports.

The CHART OF THE DAY shows the U.S. dollar against the Australian currency, plotted against Japanese manufacturers’ inventory to sales ratio. The ratio averaged below 100, or one unit of inventory to one order, between 1978 and February 2008. It rose to a record 135.3 in December as Japan’s industrial production sank by a record 9.6 percent.

“Japan is seeing an inventory back-up that is much more catastrophic than anything seen during the Asian crisis,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “With inventory backing up violently in Asia, our exports will start falling as well. We expect the Australian dollar to test 60 U.S. cents this quarter and push beneath it.”

Japan, China and South Korea are Australia’s biggest export markets, buying the nation’s raw materials including coal, iron ore and alumina in order to produce manufactured goods for shipment to the U.S. and Europe. China’s exports dropped 2.8 percent, the most in almost a decade in December, while Korea’s January exports tumbled a record 32.8 percent.

Australia’s dollar fell 15 percent in the year to March 1998 as Asian economies reeled under the impact of the region’s financial crisis. The currency traded at 67.35 U.S. cents as of 9:07 a.m. in Sydney from 67.49 cents in New York late on Feb. 6. It has dropped 31 percent from the 25-year high reached on July 16, 2008, as commodity prices tumbled.

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