Australia's dollar may fall toward the 5 1/2-year low

By Candice Zachariahs
Dec. 15 (Bloomberg) -- Australia's dollar may fall toward
the 5 1/2-year low it touched in October at 60.1 U.S. cents as
commodity prices come under pressure from a slowdown in China,
its biggest trading partner, State Street Global Advisors said.
The Australian dollar has declined 32 percent since reaching
a 25-year high of 98.49 U.S. cents in July. Chinese industrial
output grew 5.4 percent in November, the weakest pace in almost a
decade, as export growth collapsed.
"There's a lot of gloom and doom already expected and seen
in the U.S. economy," said Chris Loong, head of currency
management and asset allocation in Sydney at State Street Global
Advisors, a unit of State Street Corp., the world's largest money
manager for institutions with $14.1 trillion under custody as of
Sept. 30. "Asia is more uncertain and that's probably the
greater risk for the Australian dollar."
The currency, which traded at 66.57 cents at 11:14 a.m. in
Sydney, may extend this year's decline if export markets slow
significantly, Loong said in an interview on Dec. 10.
Asia accounted for 71 percent of Australia's minerals
exports and 66 percent of its energy shipments overseas in 2007-
2008, according to the Australian Bureau of Agricultural and
Resource Economics. The nation's earnings from commodity exports
may be A$192 billion ($127 billion) in the year ending June 30,
2009, rather than A$214 billion as forecast in September.
"China's continuing demand for minerals and metals
commodities is key to the speed of turnaround in commodities
markets," it said in a report on its Web site.

China Slowing

The World Bank forecast growth in China will slow to 7.5
percent next year, with East Asian economies growing at the
slowest pace in eight years, in its annual Global Economic
Prospects report on Dec. 9. Reserve Bank of Australia Governor
Glenn Stevens said this month that China has slowed "much more
quickly" than forecast.
The next round of commodity price negotiations will show
"how much their slowdown can flow through into our export
markets and our industry and economic growth into 2009 and
2010," said Loong. "How much of a deceleration we'll get in
Chinese growth and our other export markets," will affect the
currency, he said.
Australia's dollar strengthened since the October trough as
the central bank bought a record A$3.15 billion in the market to
support the currency. Governor Stevens pruned interest rates
three percentage points since September to encourage domestic
spending and help the economy skirt a recession. Lower interest
rates make the nation's assets less attractive to international
investors seeking higher returns on their investments.
The low 60-cent level is "the bottom end of our valuation
range," said State Street's Loong. The mid-70 cent level would
be "roughly" fair value, he said.
"If we get past the point where people have more confidence,
they will be able to look at the Aussie and kiwi and say we're
happy to fund those currencies at those interest rates and those
commodity prices because the export markets are expected to
recover," he said.