AUD dollar

Australian equities "risky", sentiment pulls on dollar | The Australian

The Australian dollar was in freefall as international investors became risk-adverse on fears that the European sovereign-debt crisis would worsen and dampen the global economic recovery.

At 1617 AEST, the Australian dollar was trading at US82.85 cents, down US3c from yesterday's close of US85.85c.

The majority of the selling pressure emerged after mid-day, once the major Asian trading centres came online. However, it was exacerbated after 2.30pm, when it plunged from US84.42c to US82.72c.

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The local currency was at US85.31 cents in the New York session overnight.

The Australian dollar is down nearly 10c in one month, and the drop is seen as steep enough to possibly prompt the Reserve Bank to become a buyer of the Australian to stabilise the currency.

The Australian dollar closed on April 30 at US93.04c - its high for 2010 was US93.31c.

The sudden bout of risk-aversion on world markets has been blamed for the dramatic falls, but analysts have also linked it to the current selling on the Australian equities markets.

Nomura chief economist Stephen Roberts said international investment funds were currently rebalancing portfolios and moving out of “risky markets”, such as Australia.

The government's contentious Resource Super-Profit Tax (RSPT) is thought to have prompted some funds to judge that Australia's sovereign risk had now increased, because of the uncertainty caused by the proposed legislation.

CBA's chief currency strategist, Richard Grace, said the local dollar’s volatility was also attributable to fears that the global recovery could be affected by the likelihood of Greece defaulting on its debt.

“It's difficult to get bullish on the Australian dollar in the current environment,” Mr Grace said.

“This is because there are growing concerns over euro-zone GDP growth and the outlook for global growth.”

Asian shares were mostly lower today, with the Seoul market pulling back after investigators said North Korea was responsible for sinking a South Korean warship in March.

Sentiment remained fragile across many markets amid ongoing worries over euro-zone debt.

“Sentiment is just so bearish,” said Southern Cross Equities director Angus Aitken in Sydney. “That's why it could be worth buying some selected large-cap stocks.

“If we get a little bit of settling in Europe and Wall Street, the bottom-up focused buyers will come in. It's been such macro, big-picture stuff driving share prices globally,” he said.

Among the major Australian miners, BHP Billiton was down 22c (0.6 per cent) at $36.75 and rival Rio Tinto fell 63c (1 per cent) to $62.25.

In the gold sector, Lihir lost 11c (2.42 per cent) to $3.93 and Newcrest Mining shed 92c (2.82 per cent) to $31.68.

At 1627 AEST, the spot price of gold in Sydney was $US1184.70 per fine ounce, down $US29.07 on yesterday's close.

In the banking sector, National Australia Bank was off 55c (2.31 per cent) at $23.25 and Westpac lost 90c (3.96 per cent) at $21.80.

ANZ finished down 62c (2.92 per cent) at $20.63 after Fitch Ratings affirmed its rating for ANZ's senior unsecured debt at AA-, while the outlook on the long-term issuer default rating was revised from stable to positive.

Commonwealth Bank fell $1.31 (2.55 per cent) to $50.07.

In the energy sector, Woodside Petroleum dropped 66c (1.56 per cent) to $41.59 and rival Oil Search lost 6c to $5.25. Gas giant Santos fell 63c (5.07 per cent) to $11.80.