TH: Australian dollar dumped in flight to safe havens
THE Rudd government's super-profits tax is a factor in the rout of the Australian dollar in the past month -- but only a small factor, say overseas fund managers and currency analysts.
Instead, they say the dollar has fallen victim to the global fallout of Europe's latest financial scare.
Warren Hyland, a portfolio manager on Schroders' global fixed income desk in London, says the Aussie dollar has been dumped in a flight to the safe havens of gold and the US dollar, the yen and the Swiss franc.
"People are not selling the Australian dollar and Australian equities because they think Australian companies have any problems or are going to struggle with the new tax, but because they simply want to get out of the Australian dollar in a risk-adverse environment," he says.
The new Australian tax would be a factor for equity investors, who might decide that it was a trigger for selling shares and taking profits, but that is not the main reason people are selling the Australian dollar, he says.
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"Things like new taxes have more effect on local investors than on international investors because foreigners have chosen to invest in Australia for a range of reasons.
"Apart from that global risk environment, the Aussie is also being hurt by the slowdown in China, the fact that commodity prices seem to have hit a short-term peak, there are some signs of deflation in the US and some possible slowing of growth all around."
On China, Hyland says the difficulties that foreigners face in buying Chinese equities and currency mean that many have turned to Australia as an indirect form of exposure to the Chinese markets.
"As the saying goes, when China sneezes Australia gets the flu, so for investors like myself who struggle to get invested in China, Australia has become a really good proxy," he says.
"And for two or three months the Chinese stockmarkets have been underperforming other developing markets because the Chinese government is trying to slow things down.
"In general terms there is a big debate in the markets now about whether global growth has good foundations or is just based on fiscal overspending by governments. If the people who are more optimistic are right, then Australia will no doubt rally with global growth."
Hyland says the fact that the Australian dollar has underperformed the NZ dollar in recent weeks suggests the resources tax is a factor in the dollar's slump.
Geoff Kendrick, an Australian born senior currency strategist for UBS in London, says the outlook for the Australian currency and broader economy "is still very good. There is no underlying reason for selling the Aussie dollar -- the economy is ridiculously good and the equity markets in Australia should continue to do well".
"The government's fiscal position is very good, the economy is in good shape and investment and immigration are both strong."
"In fact, if the Aussie falls to US80c, that would be a very good opportunity for foreign investors who have pulled some money out to reset those investments.
"Our 12-month forecast is for the Aussie dollar to move back to US93c and it could easily overshoot and go to parity with the US dollar."
Kendrick saysd the resource super-profits tax "definitely had a small impact but it was only a cent or so on the dollar and that was only for a day or two".
"The bigger picture is linked to global risk aversion and fear that Europe's problems could spread from Greece to Spain and Portugal."
Clem Chambers, chief executive of financial market website ADVFN, agrees that "the main picture is that the Aussie dollar is getting knocked around by the flight to safety triggered by everyone saying that European debt is getting scary".
"If people are a little bit scared, they move their money into yen and if they are really scared, they go into US dollars, but if both the yen and the US dollar go up, then people are terrified and that is where we are right now," Chambers says.
"Anything that is at all risky is going to lose value and people could be looking at the Aussie dollar and saying 'wow, that has already gone up a long way and may be getting risky'.
"The Aussie is being put in the same camp as the euro and the pound sterling, as currencies that are not safe havens.
"The effect of the resources tax is not helping because that was a shock and it left people asking 'what next?'
"The moment you have that question mark it's more risky because you have created what the Americans call 'an unknown unknown'.
"I think the new tax would have been big news if these giant forces were not going on, but in this environment it is a pretty small issue."
The currency markets have been "out of sync with fundamentals" for two years since the credit crisis "and we are now seeing a long-term repricing event which could mean some dramatic shifts", Chambers says.
"You look at the Aussie against the pound sterling, for instance, and the Aussie has been amazingly strong for quite a while but when these things move they don't just bend, they snap."
Chambers says the Australian dollar seemed a safe haven during the credit crunch.
"You did not have many banking problems, and solvent banks was such good news back then that the Aussie looked like a haven. Now people are so worried about the euro they are moving into the US dollar, the yen and the Swiss franc, and the Aussie dollar is no longer seen as a haven, so it is getting hit."
