CMC Markets, a currency dealer, has advised investors to buy high-yield currencies such as Australian dollar, New Zealand dollar and Euro for long term after the first quarter next year.

US dollar may remain strong until the first half of 2009, while the high-yield currencies may return to an attractive level in March or April next year, CMC Markets said.

Since the interest spread between US dollar and some high-yield currencies, for example, the British pound, continues to narrow down, the US dollar will remain strong for a short term, Foreign Exchange Analyst and Head of Education of CMC Markets Aaron Chan said.

"However, the dollar will not maintain at a high level for too long, otherwise it will threaten the export industry in the US," Chan said, adding that the US government may start to print more money in the first half next year to bring down the US currency.

As the US Federal Reserve has been cutting the interest rate for several times since August last year and the other central banks have just started the rate cut, market expects the US economy to recover first, Chan said.

"The US Federal Reserve may cut the interest rate by 75 basis points to 0.25 percent or further reduce to zero in the mid-2009," Chan said. Yet he predicts the Federal Reserve will not largely slash the interest rate, but cut it by 25 basis points consecutively.

Concerning the other high-yield currencies, CMC Markets forecasts they may reach their bottom levels in March or April 2009, during which the Australian dollar may plunge to $0.5 and the New Zealand dollar may also exchange at $0.4, while the euro and the sterling may soar to $1.15 and $1.4-1.5 respectively.

"Investors can consider buying the high-yield currencies, such as the Australian and the New Zealand dollar for long term, after the central banks announce the rate-cut period has come to an end," added Chan, who said the Australian central bank has once started to interfere the market when the Australian dollar was traded below $0.6.

Talking about the correlation between global stock market and the currency exchange rates, Chan said investors will turn to buy the low-yield currencies like the yen and the US dollar, when there is a sudden drop in the global stock market.

"When the risk level in the market is too high, investors will prefer holding more US dollars on hand," Chan said.

(HK Edition 11/05/2008 page3)