Rampaging dollar 'could hit $US1.70' as budget and industries threatened By Tim Boreham

 The Australian dollar is likely to build on its standing as one of the best performing currencies in the world, despite last week's decline from a record $US1.10 level on concerns of a pending commodities rout.

Australian currency

 ANZ chief Mike Smith said yesterday that the currency was likely to resume its climb above $US1.10, and one of the world's leading foreign exchange experts predicted the dollar would continue to rise and could hit $US1.30 in 2013 and $US1.70 by 2014.
 This spells bad news for non-resource sectors such as manufacturing and tourism and poses a dilemma for the government as it strives to achieve a budget surplus by 2012-13.

 "I can't see that there is anything to knock it off its perch because it's not only the strong Australian dollar, it's also the weak US dollar," Mr Smith said yesterday.

 "And when you think about what is happening in the US, I can't see them increasing rates for at least 18 months and that will have an impact."

 Global currency expert Savvas Savouri, of the British-based Toscafund hedge fund, went a step further, predicting the greenback would be relegated to a "museum", as China reluctantly moved to upwardly revalue its own currency, the yuan.

 Combined with ongoing commodities demand and Australia's relatively high interest rate settings, this meant the dollar "promises to enjoy one of the most impressive bouts of appreciation of any currency within the G20 (industrial nations) and indeed beyond".

 Dr Savouri, in Sydney for a conference, predicts the dollar will reach $US1.30 by 2013 — and $US1.70 by 2014, as the greenback relinquishes its "exorbitant privilege" as the world's default currency. "The simple fact is the appreciation of the Australian dollar will be extraordinary," Dr Savouri told The Australian yesterday.

 "There can't be a crisis in commodities as long as economies such as China and India are gorging on them.

 "The idea that Goldman Sachs or other speculators are hoarding commodities is absurd. If you are building hospitals and highways, you need all of these riches from out of the ground."

 On the flip side, Dr Savouri expects ongoing pressure on the greenback, which enjoys "exorbitant privilege" as the currency of choice for traded currencies. He said China inevitably would move to revalue its currency to tackle inflationary and speculative pressures, most notably in the Chinese property market as investors chased yuan-linked assets.

 But he believes China will engineer a "soft" yuan adjustment, by which the currency remains weaker (or at least stable) against European currencies.

 Having built a huge surplus of US dollar foreign reserves "to the frustration of Washington", China is likely to chase alternative currencies, including sterling and the Australian dollar.

 "The yuan's period of being coupled to the US dollar will soon have to end," he said. "It will do so because Beijing deems it time to do so, not because Washington forces the matter."

 Dr Savouri is unconcerned about the problems flowing from Australia's "two-speed economy".

 On Friday, the dollar touched a low of $US1.05 before recovering to close just under $US1.07.

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