The Australian dollar, which began the year as one of the most resilient currencies, is the worst performer among its developed market peers this quarter.
A combination of sliding commodity prices and shrinking bond yield spreads are pushing investors to look away from the Aussie.
The Australian dollar slipped 2.8% this quarter against the greenback, the worst performer by a good margin in a basket of group of 10 currencies, as the chart below shows. The euro and the British pound lead the gains.
The main supports for the Aussie are vanishing. The currency considered a proxy for the Chinese economy and commodity prices is reeling from a bearish outlook for iron ore and coal prices.
Plus, its moniker as high yield currency is at stake with the yield premium the nation’s bond offer the US paper also diminishing as the Federal Reserve is tipped to raise rates at least twice this year while the Reserve Bank of Australia is seen staying pat.
Westpac expects the price for iron ore benchmark 62% to hover in the high $US50 range this year before falling to $US40 a tonne by the end of 2018. Iron ore is trading at around $US61 a tonne.
Falls in coking coal will be even steeper. The bank anticipates that prices will drop from over $US170/ to $US79/tonne by December 2018, a fall of 54%.
It also predicts the Aussie will tread water to the end of this year before falling to US65 cents by December 2018. The currency bought US74.22 cents a short while ago.
The extra yield on Australia’s 10-year bonds over the benchmark US securities dropped to as little as 19 basis points last month, the slimmest since 2001. The spread stood at 25 basis points a short while ago.
Investors are already moving. Leveraged funds cut net long positions to 12,879 contracts in the week to May 9, the sixth consecutive week of decline. Long positions stood at 53,601 at the start of March, according to the Commodity Futures Trading Commission.