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Published 05 March 2013 06:50, Updated 05 March 2013 07:43
While currency watchers have bunkered down for another year of a strong Australian dollar, the following three years should see a gradual easing in the value of the currency to US84¢, according to research by Goldman Sachs.
The Goldman Sachs house view is that the Australian dollar is expected to decline some 20¢ relative to the US currency by the end of 2016.
Goldman’s research predicts the Australian dollar will decline in value to US95¢ by the end of 2014, to US89¢ by the end of 2015, and to US84¢ by the end of 2016.
The currency prediction was highlighted at the launch of an investment product the investment firm’s asset management business is launching in Australia that will aim to take advantage of the Australian dollar decline over the next three years, combined with the expected strength of emerging market currencies during that period.
The new product, called the growth and emerging markets debt fund, invests in emerging market fixed-interest investments such as government bonds.
The manager uses a JPMorgan emerging market debt index that includes 15 so-called emerging market countries, with highest weightings allocated to Brazil, Mexico, Poland, Russia, Turkey, South Africa and Malaysia.
When measured against the US dollar, the $A will follow a gradual trajectory on its decline to about US84¢ by 2016, according to the investment firm’s research. But when compared with emerging market currencies – which Goldman says are about 10 per cent undervalued versus the US dollar – the relative movement in value could be much more dramatic, says Blair Reid, Goldman’s global fixed income lead portfolio manager.
“That makes an unhedged investment, which is essentially what emerging market debt is, very attractive because you capture that change in the currency value,” he says.