Gas projects to pump up Aussie dollar

Australian currency tipped to rise as investors put billions into liquefied natural gas ventures

PUBLISHED : Saturday, 02 February, 2013, 12:00am
UPDATED : Saturday, 02 February, 2013, 4:25am

Strategists are boosting forecasts for Australia's dollar by the most of any Group of 10 currency, betting that US$190 billion of natural-gas projects will keep funds flowing into the nation as spending on mines slows.

Estimates for the Aussie's value by the end of the year have climbed 8.2 per cent to US$1.05, from 97 US cents on June 30, according to the median of 48 strategist estimates compiled by Bloomberg.

Options data show there is a 52 per cent chance the currency will exceed the forecast as traders increase bets on its advance to the highest in five weeks.

The Aussie's 48 per cent gain since the end of 2008 is the biggest among more than 150 currencies tracked by Bloomberg. The looming peak in resource investment highlighted by the Reserve Bank in November is being blunted by spending on liquefied natural gas projects, government debt, stocks, and real estate. That's supporting the currency, even as the worst back-to-back years of job growth since 1997 and the weakest consumer demand since July spurs prospects interest rates will fall to a record low.

"It's very hard to construct a case that the Australian dollar should fall materially, given the amount of capital inflow into the country," said Andrew Salter, a currency strategist at Australia and New Zealand Bank in Sydney. "It just shows the search for yield that's going on around the world at the moment is a pretty broad phenomenon and hits all asset classes."

The Aussie bought US$1.0407 in midday trading in Sydney yesterday, trading 24 per cent higher than its 10-year average of 84.21 US cents. The last time it was below US$1 was in June, when it reached the 2012 trough of 95.82 US cents.

Foreign investment totalled A$30 billion (HK$241.95 billion), in the three quarters ended September 30, from A$27 billion a year earlier, data from Australia's statistics bureau shows. It reached a full-year record of A$50 billion in 2011.

Chevron, Inpex, and ConocoPhillips are building seven LNG ventures in Australia at a cost of about US$190 billion. The projects suggest LNG will surpass iron ore as Australia's largest export earner by 2016 and the nation may overtake Qatar as the world's biggest LNG shipper the following year, according to Geoff Kendrick, Nomura's London-based head of European currency strategy.

The value of mineral and energy projects rose to a record A$268 billion as of October 31, the Bureau of Resources and Energy Economics said. LNG, gas and petroleum projects accounted for 73 per cent of the expenditure and iron ore 9.8 per cent, it said.

Signs of weakness in the economy, including December's unexpected decline in payrolls, would spur a drop in the Australian dollar, Barclays currency strategist Hamish Pepper said.