Australian Dollar dragged back by risk worries
theage.com.au, 27 January, 2010
Chris Zappone, 27 January 2010
The Australian dollar may extend its recent slide, after sinking below 90 US cents, as investors grow more wary about risk.
The dollar dipped under the 90 US-cent mark yesterday for the first time in nearly a month on worries about the outlook for growth in China and uncertainty over US banking regulations. The dollar was buying 89.84 US cents in recent trading, down from its local opening at 90.15 US cents.
''In the near term, I expect the (Australian dollar) to weaken further,'' said New York-based director of currency research Kathy Lien with GFT.
''The weakness of the Aussie is not a reflection of the performance of the Australian economy but instead a fear of what the tighter restrictions on the Chinese and American economies will do to growth.''
''The Aussie trades on sentiment and right now, investors are risk averse.''
China, the biggest consumer of Australian resources, said last week it was curbing loan growth in an effort to reduce the risks of asset bubbles forming. Despite releasing strong economic data the following day - showing the economy grew at a speedy 10.7 per cent pace in the December quarter - doubts have lingered about the country's economic outlook.
US President Barack Obama unveiled a plan to regulate excessive risk-taking by US banks, widely viewed as the cause of the global financial meltdown in 2008. Those limits, though, prompted investors to dump bank shares, sending shares lower around the globe. Last week was the ASX-200's worst in three months.
Dollar dims
Credit Suisse analyst Damien Boey agreed that the outlook for the Australian dollar has worsened since last week.
''In the short-term, the AUD-USD has very little upside,'' he said. ''Not only are Chinese and US regulatory concerns weighing on the currency. To see the US dollar devalue further, we really need to see a stepping up of (Federal Reserve) quantitative easing and a second, large US stimulus package.''
The Fed's quantitative easing in effect increases the money supply in an effort to seed economic activity. It also risks sparking inflation, analysts say.
Mr Boey said increased volatility made a medium-term forecast for the Aussie dollar difficult, but he was "looking for more weakness in the coming weeks".
Local economic news out today, though, may determine the dollar's immediate movements.
The Australian Bureau of Statistics is due to release fourth-quarter inflation data, with analysts expecting the consumer price index to rise by 0.4 per cent for the quarter, with the index registering 2 per cent for the full year.
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