Outright Aussie play

Bob Sinche, head of global currency strategy at Bank of America, likes the Australian dollar on an outright basis, calling it currently an “out of favor” currency.

“We think on a relative basis, the Australian dollar is still pretty well positioned for the new year,” he says. “It has suffered a lot in the second half of [2008].”

Sinche notes the Australian dollar sank 27.5 percent vs. the U.S. dollar in the second half of the year vs. a 9.5 percent gain in the first half.

“[The Australian dollar] went from being one of the top performing currencies to one of the worst-performing currencies,” he continues. “It is viewed as a risk currency and part of its performance will depend on risk appetite in the new year.”

But he notes Australia’s recent remarkable turnaround in its trade balance from deficit to surplus is a bullish factor.

Looking ahead, Sinche agrees with Dolan in that as a major commodity exporter of coal and iron ore, Australia is well positioned geographically from long-term growth in China.

The Aussie/dollar scored a high at .9850 in July 2008 and subsequently sank to .6000 in late October, amid massive carry trade unwinding.

“It had an enormous correction,” Sinche says. “The selloff has been excessive. If it regained just half of that decline we could get up to .7900, which would be more than a 15- percent move from current levels [around .6900].”