Dollar starting to lose its safe haven status
Over the past few years, with the euro crisis sparking fears of a break-up of the euro zone, Japan's investors slashed their holdings of European assets and poured billions of dollars into Australia.
While the Australian dollar has traded persistently high against the US dollar, it has started to pull back from the euro, falling nearly 10 per cent since August.
Westpac's chief currency strategist, Robert Rennie, said as conditions in Europe stabilised, there were signs that this behaviour had started to change.
"We have long believed that investors were overplaying European break-up risks and that the policies announced by the European Central Bank in late 2011 through 2012 would be successful in reducing the perception of those risks and hence influence investor behaviour," Mr Rennie said in a note to clients.
"One of the obvious implications of this would likely be that 'safe haven' demand for Australian dollar debt from [Japanese investment funds] would fall."
After hitting a high of €85.88 cents in August last year, the dollar is now trading at €77.5 cents, a decrease of nearly 10 per cent. The dollar in late Monday trading was at US104.24¢.
Frequently Asked Questions about this Article…
The article reports signs that the Australian dollar may be starting to lose its safe-haven appeal. Japanese investors who previously treated AUD assets as a refuge are showing signs of cooling interest as conditions in Europe stabilise.
During the euro crisis, fears of a possible break-up of the euro zone led Japanese investors to slash holdings of European assets and redirect billions of dollars into Australia, treating Australian assets as a perceived safe haven.
According to the article, the Australian dollar fell nearly 10% against the euro since August — from a high of about €0.8588 (85.88 euro cents) in August last year to around €0.775 (77.5 euro cents) at the time of reporting.
The article notes the Australian dollar has traded persistently high against the US dollar, and in late Monday trading it was reported at US104.24¢ (as quoted in the story).
Westpac chief currency strategist Robert Rennie said investors had likely overplayed the risk of a euro-zone break-up and that European Central Bank policies in late 2011 through 2012 helped reduce those perceived risks — which in turn suggests demand from Japanese funds for Australian dollar debt could fall.
The article suggests one obvious implication: if Japanese investors reduce their 'safe-haven' buying of Australian dollar debt, that lower demand could ease some of the upward pressure on the high Australian dollar.
The shifts date back over the past few years during the euro crisis, with major policy moves by the European Central Bank in late 2011 through 2012 helping to stabilise conditions. The article also highlights a more recent pullback in the AUD vs the euro beginning from August of the prior year.
Based on the article, everyday investors can view these developments as signs that investor behaviour is changing: European stabilisation and ECB measures appear to be reducing perceived risks that previously pushed Japanese money into AUD assets, which has contributed to a near 10% fall vs the euro and could reduce safe-haven demand for Australian dollar debt.
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