CBA strategist bullish on transtasman strength

By Rob Hosking

Friday 14th May 2004

New Zealand and Australia are poised to benefit from rising commodity prices, driven by a booming Asian economy.

And existing links with Asian countries have given both countries an advantage, Commonwealth Bank of Australia's manager of foreign exchange strategy Alex Schuman says.

The CBA which owns the ASB Bank in New Zealand is increasingly upbeat about Australia and New Zealand's economic place, he said.

"Australia and New Zealand are already used to competing with Asian countries, while the rest of the developed world now has to learn," he said.

The Asian boom is not just a China story, although China's 10% GDP growth has tended to attract most of the attention, he said.

"Japan looks like having its second year of 3% plus growth, for the first time in a long time," he said.

And the Indian economy, which he said has long resembled the country's cricket team "it's been full of promise for two decades but never quite managed it" is now starting to deliver.

The New Zealand currency has, like the Australian dollar, been subject to the ups and downs of commercial fashion over the past decade.

The two countries' status as commodity producers and non-Nasdaq economies hurt the currency for the latter part of the 1990s, he said, and it wasn't until about 2001 that interest picked up again.

The New Zealand dollar is hovering in the early to mid-60c range against the greenback and Schuman said it would probably fall to about 59c over the next few months.

Three to six months ago there was a strong school of thought that the US economic recovery was unsustainable and that the greenback would have to fall further. Now it appears the recovery is real, he said, and prospects of a further tumble which would have put the New Zealand currency up again are receding.

Both the New Zealand and Australian dollars are likely to retain their volatility, he said, particularly the New Zealand currency.

"The kiwi tends to lead the Aussie dollar, both on the up and downswing," he said. "The kiwi is much quicker to react to any changes."

The moves by New Zealand's Reserve Bank to take a more activist stance in managing the currency is unlikely to change that, he said.

The New Zealand dollar has a pretty clear range of 40-70c against the US dollar, he pointed out, and it usually moves about 10% each year, high by international standards. The Australian dollar is only slightly less volatile, he said.

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