The Aussie dollar was one of the worst performers in the forex league tables last year, dropping more than 14% against the US dollar and trailing the Japanese yen, which lost 17.7% among the major currencies.
This weakness continued into early 2014, with the Aussie dollar over the past week or so trading near three-year lows in the 88 cent region.
But a great note from Robert Rennie, Westpac’s head of market strategy, on capital flow data last week asks why the Aussie hasn’t fallen further and who the mystery buyer of the Aussie might be.
Rennie notes that Japanese investors “sold A$ assets in the prior 11 months summing to a total sale of A$32.5bn in the last year (to October).” But he also highlights that they might be returning to the buy side even if only one month’s data doesn’t make a trend.
He also highlighted the fact that US investors have been net sellers:
While it looks like we are seeing signs that aggressive US selling has waned, it’s hard to argue that demand is returning to more normal levels.
So who is the mystery buyer fueling “this current demand (that is diverging strongly from Japanese and US demand)”?
Rennie posits that it is demand from real money managers and sovereign wealth managers perhaps buying Australian debt once again. Or we might add they could be punting on the Aussie dollar going higher, as they have for most of the past 30 years of the float when they think global growth is about to accelerate.
Time and Westpac will no doubt tell us more.