Herald Sun

THE CUR­RENCY GURU WHO THINKS OUT­SIDE THE BOX,

West­pac’s cur­rency guru has made an art of wring­ing in­sights from ob­scure con­nec­tions,

- Writes Jeff Wal­ley

WHAT does a bored Ja­panese house­wife have to do with the Aussie dol­lar? How is a ship leav­ing a port you’ve never heard of go­ing to change your life?

And what does an an­ti­quated coal barge in In­dia have to do with Aus­tralia’s eco­nomic fu­ture?

West­pac chief cur­rency strate­gist Robert Ren­nie is full of ques­tions.

His job is to think lat­er­ally, find cor­re­la­tions that are not im­me­di­ately ob­vi­ous and iden­tify seem­ingly in­signif­i­cant events that — in the fi­nan­cial equiv­a­lent of the but­ter­fly ef­fect — may be any­thing but. Who is Mrs Watan­abe and how does she af­fect the Aussie dol­lar? MR Ren­nie is among ex­perts on the im­pact in Aus­tralia of “Mrs Watan­abe”.

The name refers to the phe­nom­e­non of Ja­panese housewives who — in re­sponse to low in­ter­est rates in Ja­pan and the sub­se­quent slide in in­vest­ment re­turns — took to online for­eign cur­rency trad­ing with gusto last decade.

They were trad­ing the Aus­tralian dol­lar in such vol­umes that their ac­tiv­i­ties be­came a re­li­able pre­dic­tor of where the cur­rency was mov­ing against the green­back.

When the Aussie was ar­guably un­der­val­ued, Mrs Watan­abe snapped it up. When it was over­val­ued she sold heav­ily.

She “made a cush­ion” for the cur­rency dur­ing the fi­nan­cial cri­sis.

“That is, Ja­panese in­vestors helped stave off the worst for the Aus­tralian dol­lar dur­ing the GFC,” Mr Ren­nie says.

But she also sold heav­ily — “at the fastest pace I have ever seen” — to kick-off the rapid de­pre­ci­a­tion of the cur­rency in 2013. Ear­lier this year, Mrs Watan­abe fell back in love with the Aussie, buy­ing over $5 bil­lion in Fe­bru­ary alone — the sec­ond big­gest sum for any month in records go­ing back a decade.

The love af­fair has since waned and Mr Ren­nie is not pre­dict­ing a rekin­dling of the ro­mance.

He be­lieves fall­ing com­mod­ity prices and a re­bound in the US dol­lar will drag the Aussie to US72c by the end of the year. What can cargo on the high seas tell us about Aus­tralia’s ex­po­sure to crises abroad? THE last time the Euro­pean econ­omy was on the brink, in 2012, wor­ried cen­tral bank econ­o­mists spoke with Mr Ren­nie, want­ing to know what chance there was of con­ta­gion to the Asia Pa­cific.

To help an­swer the ques­tion, he in­ves­ti­gated who was pay­ing for the car­riage of wid­gets from China across the world’s ship­ping chan­nels.

He found that trade fi­nance in Asia was col­laps­ing.

“Trade fi­nance is what makes global ship­ping work — if you put some­thing on a boat some­one has to own it be­tween that port and (the next) port,” he says.

“If no one can fund it, then trade switches off.”

It turned out ma­jor French banks that spe­cialised in trade fi­nance were sim­ply walk­ing out of the mar­ket.

Three years ago, Mr Ren­nie ob­served that ships from Columbia were tak­ing ther­mal coal to Asia.

It was a sign that energy pro­duc­ers else­where were in­creas­ingly selling into Asia, right at a time when Aus­tralian ther­mal energy ex­ports to that re­gion were ex­pected to rise.

The growth in sup­ply has con­trib­uted to a fall in prices for fuel sources, in­clud­ing liq­ue­fied nat­u­ral gas and ther­mal and cok­ing coal.

“Why is that im­por­tant for Aus­tralia? That im­plies fur­ther weak­ness in the terms of trade, fur­ther weak­ness in do­mes­tic in­come and GDP and we ex­pect to see fur­ther weak­ness in cur­rency,” Mr Ren­nie says. What does an idle barge at an In­dian port re­veal about Aus­tralia’s op­por­tu­ni­ties in Asia? MR Ren­nie has spent plenty of time in Asia and sup­ports the Fed­eral Gov­ern­ment’s move to join the new China-led re­gional in­fra­struc­ture in­vest­ment bank. He points to the se­ri­ous mis­match in in­fra­struc­ture re­quire­ments across the re­gion.

He notes the Dal­rym­ple Bay Coal Ter­mi­nal, south of Mackay in Queens­land, can load ves­sels at a rate of 7000 tonnes an hour.

But when those ves­sels ar­rive in In­dia, it can take up to five days to un­load be­cause of the poor in­fra­struc­ture at their docks.

“They use barges to lift coal out and put it on the dock­side,” he says. “I think Aus­tralia should take a prom­i­nent role in the in­vest­ment bank ... it is im­por­tant if we can have Asia de­vel­op­ing in­fra­struc­ture within Asia to have Aus­tralia play­ing an im­por­tant role.” What can you learn about hous­ing bub­bles from a hum­ble Lon­don abode? THOUGH he works out of an of­fice fac­ing the bustling West­pac trad­ing floor in Syd­ney that he over­sees, Mr Ren­nie has plied his trade far fur­ther afield.

In the 1990s, he worked in earth­quake-dev­as­tated Kobe in Ja­pan.

Ear­lier, when he was an eco­nom­ics stu­dent at the Univer­sity of Glas­gow in the 1980s, he helped with United Na­tions debt re­lief pro­grams in Kenya and Uganda.

In the same decade, he bought a house in Lon­don.

He wasn’t pre­pared for the eco­nomic roller-coaster that fol­lowed.

“I saw the price of that prop­erty go through the roof and then I saw it col­lapse,” Mr Ren­nie says.

“I lit­er­ally sold it 15 years later for what I bought it for.

“It was a vi­cious les­son in how de­ci­sions made in Europe ... have tremen­dous in­di­vid­ual con­se­quences, and I felt that re­ally my­self.”

For an economist, it was the ul­ti­mate les­son in how global de­ci­sions can hit home.

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