Naomi Fink, director of FX strategy at BNP Paribas, says news of a new fund in Australia could be a potential contrarian indicator for Aussie dollar action. “A Sydney-based currency manager is setting up a fund for individual investors to attract flows into the Australian dollar,” she says. “It is Aussie supportive, but individual investors tend to be trend followers, not trendsetters. When retail investors jump on the carry bandwagon, the move is almost over.”
BNP Paribas has a pessimistic view for the Aussie dollar by year-end, with a forecast
of 0.7400 in December and 0.7000 by the first quarter of 2008 — well below current
levels of trading. “We think the Aussie dollar will weaken by the end of the year,” Fink says. “We don’t think [the bull move] is going to last because of all the migration of capital from low-yielding countries to high-yielding countries.”
The Australian and New Zealand currencies remain inextricably intertwined within the global carry trade, in which money managers sell Japanese yen at a low rate in exchange for higher-yielding plays. With Australia and New Zealand boasting some of the highest domestic interest rates in the industrialized world at 6.25 percent and 7.75 percent, respectively, there has been hefty demand for the currencies down under in recent months.
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