THE CURRENCY GURU WHO THINKS OUTSIDE THE BOX,
Westpac’s currency guru has made an art of wringing insights from obscure connections,
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.