Hong Kong investors who took a punt on the Australian dollar earned high rates of return last year - and although the ride may be choppy, there is more to come, say currency watchers.
The Reserve Bank of Australia (RBA) raised interest rates to 7 per cent last month, the third increase in six months. This means that the Hong Kong dollar deposit converted into Australian dollars 12 months ago would have delivered a 16 per cent conversion gain before taking into account interest rate differentials. And, with Australian interest rates headed higher as Hong Kong rates head lower, the case for keeping investments in Australian dollar assets in the first half of the new year remains compelling, according to analysts.
Minutes of RBA's last board meeting on February 5 were released on February 19 and revealed that board members had contemplated a larger 50-basis-point increase in cash rates in their campaign to throw the brakes on inflation, before settling on a 25-basis-point increase to 7 per cent.
Read together with job data that showed a fall in Australia's unemployment rate to a new 33-year low of 4.1 per cent in January, the case for at least one, and possibly two, further rate increases from the RBA, is now judged a near-certainty by the market.
In the view of HSBC chief economist for Australia and New Zealand, John Edwards, the Australian dollar may be bid up from its February levels of about 91 US cents to 95 US cents by the middle of the year.
Mr Edwards says driving these gains will be a widening 'carry' between Australian interest rates that are likely to reach 7.5 per cent as United States rates track below 2 per cent.
