Just a few months removed from being the currency short du jour for hedge fund managers and financial titans like George Soros, the Australian dollar has been in rally mode for several weeks. At this writing, AUD/USD trades around 0.9540, near its highest levels since May.
That is good news for the CurrencyShares Australian Dollar Trust (NYSEArca: FXA), which has gained 2.5% in the past month. Since the start of October, FXA is higher by 1.6% and in the past five days, the ETF is higher by 1.2%.
That may not sound like much, but consider that a week ago, PIMCO, the world’s largest bond manager, said the Reserve Bank of Australia might be forced to lower interest rates from an already record low of 2.5% if sectors beyond mining do not start contributing to Australian economic growth. [If PIMCO is Right, Aussie ETFs Merit Attention]
“Over the past 12 years, mining investment as a share of GDP has risen sixfold to nearly 7%, but recent data suggest that this balance sheet is tapering, with the sector detracting from real growth in the first half of 2013. To encourage a new balance sheet to step forward, the Reserve Bank of Australia (RBA) will have to keep interest rates low for an extended period, in our view, and likely lower them further to help smooth the transition away from mining-assisted growth over the cyclical horizon,” wrote Adam Bowe and Robert Mead of PIMCO.
Mead reiterated the case for lower Australian rates with this tweet during Thursday’s Asian session.
Mead on Downunder: Unintended (?) consequences of global policies: AUD @ 95.50 means short term Aussie interest rates lower for even longer.
— PIMCO (@PIMCO) October 16, 2013
Of course, lower interest rates could hamper further upside for FXA. Fortunately for Aussie bulls, there are other factors to consider. [Aussie Dollar ETFs Could See Near-Term Upside]
For example, ANZ Bank no longer expects RBA to lower rates by next February. In fact, ANZ is now forecasting the first rate hike to occur in 2015 with an eye toward Australian rates of 4% by the first half of 2016.
“Market data indicate there is only an 11% chance RBA lowers rates at its November meeting and most traders now believe that if another rate cut is coming, it will happen in February 2014,” according to Investing.com.
Additionally, swaps data indicate traders only see a 22% chance RBA cuts rates by the end of 2013, down from 37% last month. That could be a harbinger of more upside for FXA.
CurrencyShares Australian Dollar Trust
