Aussie, Canadian dollars find favour with global central banks after falls

The biggest declines in the Canadian and Australian dollars since at least 2011 are making the currencies more attractive to global reserve managers.

Purchases of Canadian dollars by central banks totalled US$16.8 billion in the second quarter, while those for the aussie were US$13.5 billion, based on International Monetary Fund data compiled by investment bank Nomura.

No other currencies saw as much buying even though the Canadian dollar dropped 3.3 per cent in the period and the Australian dollar fell 12 per cent in the worst performance among the 31 major currencies tracked by Bloomberg.

"The reserve-currency status of the Australian and Canadian dollars is very sound," said Richard Grace, the chief currency strategist at Commonwealth Bank of Australia. "Both economies have a stable sovereign rating, and as liquidity continues to improve, reserve managers will probably allocate a higher proportion of reserves towards these two currencies."

Their appeal may only increase as the American government's partial shutdown and a congressional stand-off over the debt ceiling encourage more central banks to diversify their foreign currency reserves away from the US dollar.

The two also have the advantage of the biggest sovereign debt markets among the eight nations that hold AAA credit grades with "stable" outlooks from the three main rating companies.