A COMMONWEALTH Bank (CBA) foreign exchange analyst has hosed down recent speculation that the Russian Central Bank views the Australian dollar as a potential safe-haven currency in the long-term.
Reports of Russian investment in the Australian dollar pushed foreign exchange rates to three-month highs in recent weeks, with the dollar reaching $US1.06.7.
Joe Capurso, CBA, said that while it was expected that the Russian central bank would diversify some of its foreign currency reserves into Australian dollars, due to our currency’s high yield at present, the numbers being talked about were relatively small.
“We have been hearing about the Russian bank investing in Australia since last year, but while there have been some reports about this recently that have given the topic some airplay, it is important to consider the scope of it all.
“They have $473 billion in reserves, and the reports are that they will invest around1pc of that in Australian dollars, meaning an investment of around $5b.
“When you consider the Australian dollar trades around $150b a day, you can see it’s a relatively small move.”
He said the Russian investment was part of a process of diversifying out of traditional blue chip currencies, which have been underperforming in terms of yield during the current world economic downturn.
Mr Capurso said the major implications were in terms of market sentiment.
“The news of the Russian investment caused a bit of a spike last week, but by Monday the Aussie dollar was already down about three quarters of a cent, the market quickly moves on.
“Anyone who thinks this is part of a reclassification of the place of the Australian dollar will only have to see what happens when there is a spike in the performance of the greenback and where the investors shift to.”
In the medium term, he said the CBA forecast the Australian dollar to drift slightly downwards.
“We’re expecting to be around parity with the US dollar at the end of the year.”
It will be a similar story against the euro, where the Australian dollar is currently trading at close to record rates, at over 80 euro cents.
Meanwhile, Mr Capurso said the focus of world FX markets would be turning to key US economic data this week.
“There’s a lot happening in the US this week, including the release of employment data, which is probably the most important report in the world in terms of financial markets
“A higher unemployment rate could see people become worried about the US economy and running for safer investments, which could push the Aussie dollar down.”
In Europe, he said the attention would be on Greece.
“If the meeting of European leaders to discuss Greece’s bailout plans goes well, then the euro could push higher.”
Domestically, he said it was a quiet week, with move on the Australian dollar coming primarily from news abroad.
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