October 28, 2008 10:34am THE dollar was in danger of sinking below US60c today for the first time in five and a half years, even though the central bank intervened in the foreign exchange market for a third time in recent days. Traders continued to shun the Australian dollar during another weak offshore session overnight as the popularity of high interest rate currencies continued to fall amid fears of a global recession. The domestic currency hit US60.12c at 7.30am (AEDT), a level last reached in early April 2003, and came close to retesting that low point again two hours later. The Australian dollar last fell below US60c on April 8, 2003. The unit has continued to decline today after opening the local session US0.83c weaker at US60.40c, marking the fifth successive weak start to the day. The Reserve Bank intervened in the foreign exchange market again this morning to improve liquidity, a spokesman said. The central bank acted to prop up the Australian dollar on Friday night and yesterday for the third and fourth time in seven years. Westpac senior currency strategist Sean Callow said the dollar was likely to fall below US60c today, after a 200-point drop inWall Street's Dow Jones stock index overnight turned traders off riskier currencies. "It does look like 60 (US cents) will give way some time soon," he said. "The level of the Aussie will be determined by global risk appetite and whether markets calm down. "When it (the Australian dollar) has fallen so far so fast, it's very difficult to say where it will stop exactly." Mr Callow said high volatility in the foreign exchange market had prompted the RBA action. "The Aussie wasn't trading smoothly at all," he said. Bank of America senior currency strategist John Rothfield said the RBA action had not swayed traders to back the currency, amid a downturn in commodity prices. "I don't think people are necessarily ready to buy the Aussie dollar at the first sign of aggressive (RBA) intervention," he said from San Francisco this morning. "It's symptomatic of the global economic cycle. "Australia has a current account deficit and two-thirds of exports are commodities." The Australian dollar fell to 60.25 US cents last night as the euro dipped to a two-year low against the US currency. Mr Rothfield said the Australian dollar hit its low point last night as the US dollar rallied, but the local unit then struggled as other currencies recovered. "The US dollar was strong and the Aussie went down with everything else," he said. "But when the US reversed a little bit as the day went on, the euro rallied but the Australian dollar couldn't completely participate. "The Aussie didn't quite come up so far because people are worried about the risk trade." A volatile session on US share markets also impeded the Australian dollar's progress. The Dow Jones Industrial Average closed 2.42 per cent lower and the broader Standard & Poor's 500 index fell 3.18 per cent. The Wall Street action came after Tokyo shares plunged to a 26-year low and Hong Kong fell 12 per cent. With no major domestic economic data out today, the dollar is expected to take direction from risk sentiment on regional equity markets. The RBA had previously bought dollar reserves in August 2007, in the early stage of the global credit crunch, and in early 2001, when a US recession helped pushed the local currency below 50 US cents.
Tuesday, 28 October 2008
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