Magazine article Global Finance

Australasia: Aussie, Kiwi Dollars Ripe for Commodity Rebound

Magazine article Global Finance

Australasia: Aussie, Kiwi Dollars Ripe for Commodity Rebound

Article excerpt

As soon as investors get a whiff of improving commodify market and global economic conditions, they rush for the Australian and New Zealand dollars.

It happened in 1999 and again in 2000.The Aussie and the kiwi, as traders like to call them, failed to take hold in the last two global upswings, however, and subsequently fell back to all-time lows.

"It's enough to make you worry about another false start," says Nick Bennenbroek, currency analyst at Brown Brothers Harriman in NewYork."We think it's time, however, to reconsider long positions in these currencies," he says.

With a global recovery just around the corner, and the Aussie and the kiwi still undervalued, the outlook for the early-cycle commodity currencies is looking up.The manufacturing sectors are showing signs of life, not only in the United States, but in Europe and the United Kingdom, as well, Bennenbroek says.

"Investors certainly want to be on board when these commodity currencies turn higher, but the currencies' atypical behavior makes the timing of the next upturn very difficult to predict, he adds.

Buying the kiwi against the Aussie could be one way of positioning for an eventual commodity currency uptrend, while at the same time hedging against further disappointment, according to Bennenbroek, himself a New Zealand native.

Historically, the Australian and New Zealand dollars have traded fairly closely with their relevant commodity price baskets. But this relationship broke down in the late 1990s. …

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