Forex Flash: AUD more dependent on FDI inflows - ANZ

FXstreet.com (Barcelona) - Recent Q3 balance of payments data in Australia confirms a peak in foreigner demand for AUD assets, says Andrew Salter, ANZ FX Strategist, who sees now foreign direct investment (FDI) inflows as the primary funding vehicle for the current account deficit. The analyst believes that "with FDI flows expected to abate alongside the peak in mining investment into 2013, other inflows will need to pick up, all else equal, to support the AUD beyond 2013..."

Mr. Salter elaborate further: "The greater share of net FDI inflows in the financial account vis-à-vis net portfolio debt inflows will continue to make the Australian dollar more resilient to destabilising events in overseas economies and financial markets. Changes in domestic and international interest rates will also have lesser effect than previously. But at the same time the outlook for the currency will become more dependent on the continued support of FDI inflows themselves. Since at some point these flows are expected to abate with the peak in mining investment, a new source of financing will need to step in."