Aussie dollar hits 32-month low

THE Australian dollar is flirting with levels not seen since late 2015, but there’s one group of people who are enjoying the crash.

WEALTHY investors are using the Aussie dollar’s weakness as an opportunity to buy the dip.

With the local currency hovering at levels not seen since late 2015, Citi says the volume of Aussie dollars purchased against the US dollar doubled between July and August.

The Australian dollar was trading at 70.85 US cents at 2pm AEDT on Tuesday, recovering from a low of 70.42 cents on Monday. The dollar earlier hit 70.42 cents on Friday, its lowest point in 32 months.

“Over the past couple months we’ve been seeing increasing flows into the currency space with our ultra high net worth clients,” said Citi investment specialist Mahjabeen Zaman.

Citi clients are wholesale investors, defined as having net assets of at least $2.5 million, or a gross income for each of the last two financial years of at least $250,000.

Ms Zaman said the transactions were generally north of $100,000.

Citi says investors have become more savvy about taking advantage of currency fluctuations to move money around, in contrast to the typical “set and forget” attitude to the cash portion of their portfolio.

The investment bank says over the past three months it has seen a 7 per cent uplift in forex volumes a result of its global currency account, which allows investors to hold cash in up to 10 different currencies.

“This really shows the ultra high net worth clients are very much in tune with the market and also are willing to move in and out of currency,” Ms Zaman said.

Citi is forecasting further pressure on the Aussie dollar as its US counterpart continues to strengthen, at least until the midterm elections next month.

Domestically, the Reserve Bank is expected to keep rates on hold until at least mid-2019. “Because rates are lower for longer this has contributed to the Australian dollar being a little depressed for the last couple of months,” she said.

“Domestically we think rates are not going up in the near term. At the same time, Australia is vulnerable to China and US trade tensions, given our close relationship with China.”

Global factors contributing to the strengthening US dollar included volatility in the eurozone as a result of the Italian political scene putting pressure on the euro, Brexit risks in the UK, and emerging market risks out of Argentina and Turkey.

“A lot of money is flowing out of those countries into the US,” she said.

“Of course not forgetting the US is one of the few developed economies that is raising rates at the moment, so the interest rate differential has pushed more funds into the US dollar.”

The US Federal Reserve last month raised its benchmark interest rate for the third time this year by a quarter of a percentage point to 2.25 per cent. The Fed has flagged another hike in December, three more next year and one in 2020.

The RBA last week kept the official cash rate on hold at its record low of 1.5 per cent, marking 26 months since the last move. There has not been an official cash rate increase since November 2010.

As the Aussie flirts with the 70 cent barrier, MacroBusiness Fund chief strategist David Llewellyn-Smith predicts it could hit “mid- 60s” by next year.

He said the trade war and interest rate differential were weighing against reasonably high commodity prices to push the dollar below where it would ordinarily be if that traditional relationship held.

The Aussie stock market continued to slide on Tuesday after suffering its worst one-day performance since March the day before, led by falls in the heavy materials sector off the back of falling aluminium and copper prices.

“There’s nothing working for the Australian dollar at the moment,” Pepperstone head of research Chris Weston told AAP on Monday.

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Originally published as Aussie dollar hits 32-month low