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John Taylor, founder of the currency hedge fund FX Concepts LLC, said he is ending bets that commodity-based currencies will appreciate as slowing Asia growth damps metal prices.
“If you look at Australia or South Africa, these currencies have come under a lot of pressure as commodity prices in general, copper, steel, iron and iron ore, have been heading lower,” Taylor said in an interview on Bloomberg Television’s “InBusiness with Margaret Brennan.” China’s growth “is headed in the wrong direction. Imports of certain critical material are going down, and prices are going down on the products that it imports. It just doesn’t look healthy.”
China, the biggest trading partner of Australia, lowered its annual economic growth target on March 5 to 7.5 percent, the lowest level in seven years, as Europe’s debt crisis sapped demand for the nation’s exports. An 8 percent goal had been in place since 2005.
The Australian dollar decreased 0.1 percent to $1.0373 at 12:27 p.m. in New York after touching a two-month low of $1.0305 yesterday. The Aussie was poised for a 1.6 percent gain versus the U.S. currency in the first quarter after climbing 5.7 percent in the last three months of 2011. South Africa’s rand appreciated 0.7 percent to 7.6565 versus the dollar, extending its quarterly advance to 5.7 percent.
FX Concepts is “pretty much” avoiding purchases of all Asian currencies expect the Japanese yen, said New York-based Taylor, who manages about $4.5 billion in assets. “We are looking to buy yen where as we are looking to stay short on things like Korea and Malaysia.” A short is a bet an asset will decline in value.
Taylor and other foreign-exchange traders, facing lower volatility and record-low interest rates in developed countries, are purchasing so-called frontier currencies of such countries as Kazakhstan, Nigeria and Peru.
“Places like Kazakhstan and Nigeria have looked much more positive,” Taylor said. “The problem in frontier markets is it’s hard to get in and even harder to get out, so you can’t put too much into it. A Peru or Kazakhstan is safer than Nigeria or a Ukraine.”
Countries rich in commodities or with high growth rates are attracting investors after Europe’s debt crisis prompted them to seek the safety of the dollar and yen in 2011.
Investec Asset Management Ltd., which trades currencies of nations from Colombia to Uganda, said this month that demand for assets in so-called frontier markets increased in the past six months. Cambridge Strategy (Asset Management) Ltd. invested in the Nigerian naira from December to February. Adrian Lee & Partners, a money manager, will add positions in currencies including Kazakhstan’s tenge and the Kenyan shilling by the end of the second quarter.
Taylor is also betting on the currencies of Mexico and Canada, which are poised to benefit from improving U.S. growth and consumer spending.
The U.S. economy grew at a 3 percent annual rate in the last three months of 2011, the most in more than a year and the same as previously estimated, the Commerce Department reported yesterday in Washington.
Taylor expects the yen to rebound versus the dollar over the next few weeks after dropping 1.5 percent in March.
“The yen is an interesting side-line,” Taylor said. “It obviously will be hurt by a slowing China, but some much of the yen is based on the flows in and out of the country for investment reasons. Over the last seven to 10 years, the yen is often weak in the month of March and then in the month of April it starts to strengthen.”
To contact the reporters on this story: Liz Capo McCormick in New York at firstname.lastname@example.org; Margaret Brennan in New York at email@example.com
To contact the editor responsible for this story: Dave Liedtka at firstname.lastname@example.org