AUD, NZD investors hit
Five-year lows of these two currencies hit S'poreans with big paper losses
INVESTORS tempted by the attractive interest rates offered for Aussie and Kiwi dollar fixed deposits are licking their wounds after the two currencies plunged to five-year lows.
Both types of fixed deposits offer generous interest rates, but they cannot cover for the dramatic loss in the value of the currencies.
One unhappy investor, who declined to be named, is sitting on a whopping $50,000 paper loss from a $200,000 Aussie dollar fixed deposit she had placed in July. That is a 25 per cent loss in just four months.
The interest rate offered was 5.765 per cent per year, almost 10 times better than the 0.6 per cent she was earning in a Singapore-denominated fixed deposit.
At the time, the Australian dollar was at a high of $1.319 to the Sing dollar. The currency fell to $1.025 to the Sing dollar late yesterday.
Now that the Australian and Singapore dollars are practically at parity, the woman, who is in her 20s, is regretting that investment.
She is holding on to the investment for as long as she can. She told The Straits Times ruefully: 'In the span of the next 20 years, hopefully the Aussie dollar will appreciate.'
Operations manager Kenneth Ang is nursing paper losses of about $8,000 on his Aussie-dollar fixed deposit.
He had put a 'large sum' of cash into a 12-month fixed deposit in a Singapore bank about eight months ago, when the Aussie was markedly stronger - trading at about $1.295 to the Sing dollar.
He said he was 'a bundle of nerves' on Wednesday when the currency fell to a six-year low of 96.17 Singapore cents, before bouncing back somewhat yesterday.
But he is not about to cash out yet.
'Thankfully, the Aussie dollar recovered the next day, and I hope it stays that way,' he said. 'I'm not going to withdraw my deposit prematurely as I don't want to fork out the penalty on top of all my losses.'
Another investor, who gave his name only as Mr Chan, has been hit by paper losses of $10,000 on his $70,000 deposit and is also planning 'to wait it out'.
Meanwhile, the Kiwi dollar fell to as low as 86.76 Singapore cents this week, down from $1.1215 a year ago.
Until this August, banks had seen steady investor interest in the fixed deposits of these two currencies. This is thanks to the relatively high rates of over 6.3 per cent for Aussie-dollar deposits and over 8.1 per cent for the New Zealand-dollar ones - a far cry from the 1 per cent on similar Singapore-dollar deposits.
These interest rates had been among the highest among medium-sized economies. The currencies' popularity was also boosted by a commodities boom, since both countries are major exporters of metals and other resources.
But now, banks say there is scant interest.
Ms Janice Poon, Standard Chartered Bank Singapore's general manager of wealth management, noted that the Australian dollar and New Zealand dollar are both likely to weaken even further against the Singapore dollar over the coming months.
That is because Australia's and New Zealand's central banks are likely to cut interest rates drastically as the global credit crisis unfolds, she explained.
Lower rates make the currencies less attractive to hold. Global investors sell them, causing them to weaken further.
Some analysts also think the currencies will drop because of weakening global demand for commodities.
In addition, experts warn that interest rates on these deposits are also likely to come down.
Earlier this week, the Reserve Bank of Australia (RBA) set the ball rolling by cutting the benchmark interest rate Down Under by a full percentage point from 7 per cent to 6 per cent.
Mr Emmanuel Ng, OCBC Bank forex strategist, noted that 'the potential for both the RBA and the Reserve Bank of New Zealand to deliver further interest rate cuts remain a very real proposition'.
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