RBA steps in as dollar tumbles | Business | News.com.au
RBA steps in as dollar tumbles
AAP
October 27, 2008 11:15am
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THE Reserve Bank has stepped in to prop up the weak Australian dollar, which some experts say could fall below US60c this week
RBA intervention
The Reserve Bank of Australia (RBA) has confirmed it bought the Australian dollar during offshore weekend trade because the foreign exchange market was illiquid.
This was only the third time the central bank had intervened in the foreign exchange market to support the local currency since 2001.
“We provided some liquidity on Friday night,'' a spokesman for the RBA said.
“Did we buy some Australian dollars on Friday night? Yes we did.
“The FX market was very illiquid.”
The RBA source said the central bank was not defending any key level in the Australian dollar, which fell to US60.55c on Friday night for the first time since April 2003.
The RBA spokesman said the central bank would intervene again if trading conditions were illiquid.
Heading south
The Australian dollar tumbled over the weekend against the US dollar as global share markets and commodity prices continued to slide, and could fall below US60c this week, according to currency strategists.
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Commonwealth Bank of Australia chief currency strategist Richard Grace said the Australian dollar could dropbelow Friday night's low-point of US60.55c, the weakest level since April 2003.
“The risk is it being lower than current levels by the end of the month,'' Mr Grace said.
“We're just unsure how low it could go.
“There's large risk of much more downside pressure.”
The Australian dollar has shed 39 per cent since hitting a 25-year high of US98.49c in mid July.
At the start of local trading at 7am AEDT, the Australian dollar was at US61.96c, down almost US2cfrom Friday's domestic close of US63.91c.
Against the currency of Australia's biggest export market, Japan, the Australian dollar fell to 55.10 yen on Friday night, its lowest level since the end of World War II.
The local currency has lost almost half, or 47 per cent, of its value against the yen since late July.
Recession fears weigh
Mr Grace said that with fears of a global recession in the minds of traders, the Australian dollar was likely to finish 2008 at US64c, before dropping to US59c by the end of March 2009.
“It's coming from a selling of the Australian dollar according to downward revisions of global growth and commodity prices,'' he said.
St George chief economist Besa Deda said the prospect of more rate cuts from the RBA and a continuation of financial market turmoil would weigh on the Australian dollar into 2009.
“The main reason for the downgrade lies with the deepening of the credit crisis and its knock-on effects to the economy, both the world and domestic economies,'' she said.
“The mix of factors that will influence the Australian dollar lower also include a deterioration in the global growth outlook, particularly Asia, weaker commodity prices, heightened risk aversion, a slowing domestic economy, more rate cuts from the Reserve Bank of Australia and a continued period of general strength for the US dollar.”
Ms Deda said the Australian dollar was likely to hit US61c by December, fall to US59c in March and recover to US65c in June 2009.
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