By Ron Harui
March 31 (Bloomberg) -- Australia’s dollar may rise to the highest against the yen since October by the end of April, as the nation’s fiscal and monetary stimulus measures are likely to help the economy recover, according to CMC Markets.
The Australian currency is heading for a second monthly gain versus the yen as a rally in prices of commodities which the country exports prompted investors to buy higher-yielding assets. Demand for the Aussie may increase after Reserve Bank of Australia Deputy Governor Ric Battellino said today the central bank still has room to lower interest rates further to cushion the economy from the global financial crisis.
“The Australian dollar is the more economically sound currency,” Ashraf Laidi, London-based chief market strategist at CMC Markets, said in an Bloomberg News interview in Singapore yesterday. “Australia is one of countries in the Group of 10 universe that is forecast to have the least negative growth this year.”
Australia’s currency rose 1.9 percent to 67.53 yen at 3:57 p.m. in Sydney from 66.27 yen in New York yesterday. It reached 69.62 yen on March 24, the highest since Nov. 5. The currency advanced 0.9 percent to 68.74 U.S. cents from 68.14 cents.
The Aussie is likely to strengthen to around 73 yen by the end of April, Laidi said. The 73 yen level was last seen on Oct. 14. The currency is set for its first quarterly advance against the yen since June as the price of gold, the nation’s third-most valuable raw material, is poised for a second quarter of gains, while the local stock market may rise this month for the first time since August.
Gold for immediate delivery rose 0.4 percent, bringing its gains to 4.2 percent this quarter, the largest increase since the three months ended March 31, 2008. The S&P/ASX 200 Index of shares gained 0.3 percent today.
Monetary, Fiscal Stimulus
The government has announced A$88 billion ($60 billion) in cash handouts, infrastructure spending and bond market assistance since September 2008. The RBA has cut the benchmark interest rate by four percentage points since early September to 3.25 percent, which compares with 0.1 percent in Japan.
“The combination of this monetary stimulus, fiscal stimulus as well as a higher interest rate is a good combination” for the Australia dollar, Laidi said. “There is probably more upside against the yen in the near term.”
RBA Governor Glenn Stevens and his board may lower borrowing costs by at least another quarter-percentage point on April 7, according to 12 of 16 economists surveyed by Bloomberg News on March 27. Four predict no change in the benchmark.
The central bank’s rate reductions “have been effective and there remains scope to ease policy further if circumstances require,” RBA’s Battellino told a conference in Brisbane.
Likely to Contract
Australia’s economy is likely to contract this year for the first time in almost two decades amid slumping global demand for exports, Battellino said. In February, the central bank predicted 0.5 percent growth.
The International Monetary Fund said on Feb. 5 that U.S. gross domestic product will contract 1.6 percent this year, Japan’s will shrink 2.6 percent and the euro area will decline 2 percent.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net
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