By NEIL BEHRMANN*
Commodity currencies are back in fashion and the Australian and New Zealand dollars, in particular, are expected to race further ahead in the next year.
According to a survey by www.marketpredict.net - a financial and commodities market outlook publication - the Australian and New Zealand dollars will strengthen more than the US dollar, euro, yen and pound in the months ahead.
Currency traders and strategists at Citigroup, Goldman Sachs, Barclays Bank, Merrill Lynch, Standard Chartered, National Australian Bank, Tokyo-Mitsubishi International and other banks believe that the Australian and New Zealand dollars will rise by 8 per cent and 7 per cent respectively against the US dollar and the Canadian dollar will appreciate by 3 per cent.
These gains will take place at a time of general US dollar weakness, survey respondents believe. The Canadian dollar will rally by 3 per cent while the South African rand, a combination of a commodity and emerging currency, will trade sideways for a few months and then slip by 6 per cent over a 12-month period.
The average US dollar forecasts for May next year are 1.53 for the Canadian dollar, 59c for the Australian, 48c for the New Zealand dollar and 11.16 for the rand.
With the exception of the rand, the overwhelming consensus about commodity currencies is bullish.
Most currency strategists and traders are also bearish about the US dollar and Japanese yen, but even though the euro is forecast to rise, the Australian and New Zealand dollars will still be the better performers, survey respondents say.
The bullish sentiment is in marked contrast to last year.
From January to December last year the rand plunged by 37 per cent, the Australian dollar by 13 per cent, the Canadian dollar by 7.5 per cent and the New Zealand dollar by 7 per cent.
A major slump in commodity prices contributed to the slide and the rand was also plagued by political and economic catastrophe in Zimbabwe and confused exchange rate policies.
But the revival of gold, base metals, wool, meat and other commodities and confidence that a general global economic revival was under way in the first quarter helped the currencies turn.
Commodity currencies have been among the best performers this year. The rand has gained by 13 per cent against the US dollar, the kiwi by 8 per cent, the Australian dollar by 7 per cent and the Canadian dollar 3 per cent.
Capital flows into gold and resource shares and high-yielding sovereign bonds contributed to the revival.
Ten-year rand sovereign bond yields are 12 per cent, New Zealand 6.79 per cent, Australian 6.4 per cent and Canadian 5.6 per cent - well above US and European 10-year government bond yields of just over 5 per cent. Conservative monetary policies have also backed the commodity currencies.
New Zealand and Canadian central banks have raised interest rates to curb inflation, Australia is expected to follow suit next week and there are hints that the South Africans will follow.
The majority of a 10-person panel believe that despite conflicting economic signals, global trade will continue to improve and rising metals and other raw materials prices and volumes will boost exports of commodity producing nations.
The minority fear that the recovery will be tardy and that commodity price rallies will falter, leading to range trading or possibly setbacks.
* Neil Behrmann is editor of Market Predict
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