JPMorgan Asset Bets Australian Dollar Will Make a Comeback


© Reuters. JPMorgan Asset Bets Australian Dollar Will Make a Comeback

(Bloomberg) — Australia’s dollar had a tough year in 2018 and is still a popular short, but JPMorgan Asset Management sees potential for the beaten-down currency to make a comeback.

The $1.7 trillion money manager took a small long position in the late last year, according to Julio Callegari, lead portfolio manager for local rates and FX in Asia. A dovish Federal Reserve, a likely global economic growth recovery in the second half of the year and thawing U.S.-China trade tensions should outweigh domestic risks Down Under, including a worsening housing slump, he said.

“We’ll look at the currency with a bias to add,” Hong Kong-based Callegari said in a telephone interview. He thinks the Aussie could rise to 75 U.S. cents over the long term, from 70.3 cents as of 8 p.m. Sydney time Wednesday. However, he’s waiting for more concrete signs of a pickup in worldwide economic growth before ratcheting up his long position.

Australia’s dollar tumbled 9.7 percent to become the worst-performing Group-of-10 currency last year as rising U.S. interest rates and America’s trade war with China dampened demand for riskier assets. While some global pressures have abated, a slowing domestic economy and dovish Reserve Bank of Australia are spurring funds to maintain short bets on the Aussie.

Investors are returning to developing-nation assets after a rout last year, and Callegari has his own favorites. He likes China’s yuan, as well as Indonesia’s rupiah and bonds for carry amid a favorable economic backdrop. He favors the short end of the curve for India bonds, but is cautious on the rupee amid geopolitical and election risks.

Callegari’s prediction that Australia-specific growth could be slower for now has some data on its side.

The central bank kept benchmark interest rates at a record-low 1.5 percent on Tuesday. On Wednesday, the Aussie got a double whammy from worse-than-expected economic growth data, followed by JPMorgan Chase (NYSE:) & Co’s Sally Auld changing her RBA forecast to cuts in July and August.

Callegari’s optimism about the global-growth story comes amid talks that the U.S. and China are close to clinching a trade deal — although it may not necessarily spell the end to the wider trade dispute. Still, working toward a deal is better than all-out conflict, and this bodes well for the Aussie, he said.

“We already saw a significant slowdown in the U.S.,” Callegari said. “That’s much more favorable to emerging market and the cyclical currencies.”

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