Asia's millionaires turn to Aussie dollar as their currencies wilt, UBS says
Date: Nov.19 2015
Asia's wealthy, anxious as many of their local currencies depreciate, are increasingly lured by the resilience of the Australian dollar, says UBS, the world's largest private bank.
The Aussie strengthened against all but one of 12 major Asian counterparts since September 30 on signs the RBA won't cut its benchmark interest rate beyond its record-low 2 per cent amid a revival in the jobs market. China's slowing economy and slumping commodity prices have also weighed on the region's currencies.
"The interest in the Aussie dollar has picked up again recently because it is more or less stabilising at $US70¢, $US71¢," said Kelvin Tay, regional chief investment officer at UBS's wealth management business in Singapore. "As an alternative to the local currencies in the region, it's not too bad to consider the Aussie."
Australia's dollar reached a six-year low of $US68.96¢ in September before trading at $US71.11¢ in Sydney Thursday morning. The median estimate in a Bloomberg analyst survey projects the currency will weaken to $US68¢ by June. The currency has dropped more than 30 per cent against the greenback since policy makers started cutting rates in November 2011.
"There could be some downside risk to $US68¢, but anywhere at $US70¢ or slightly below, that's a pretty attractive level to get into," Tay said. "$US70¢ is a very strong support level."
Tables have turned
UBS closed a bearish position last month for its clients betting on the Aussie's decline versus the pound, Mr Tay said.
It's a complete reversal from the start of the year when UBS noted many of its wealthiest clients in the region had abandoned the Aussie amid record-low yields and sustained declines as the nation struggled with the end of the mining boom. The RBA cut rates for four years, shrinking the yield advantage the nation's 10-year bonds offer over US Treasuries to less than a quarter of its 2.8 percentage-point spread in February 2008.
RBA Governor Glenn Stevens kept interest rates unchanged for a sixth month on Melbourne Cup day. A report last week showed the nation's jobless rate unexpectedly fell in October, while minutes of the November 3 policy meeting released on Tuesday showed the central bank forecast growth would strengthen gradually.
Singapore's dollar will probably weaken against its Australian counterpart on speculation the Monetary Authority of Singapore might cut rates at its next policy review in April, while the RBA remains on hold in the next quarter, Tay said.
"The question that clients always have is: Asian currencies have weakened so much. Are we near the bottom or should we actually hold back and then after that buy our local currencies back?" Tay said. "Our answer to them is you need to diversify."