Market jittery as dollar dives nearer 50"

By TOM ALLARD, Economics Correspondent

The Treasurer, Mr Costello, will fly to the United States tomorrow to begin a roadshow selling the strengths of the economy to the powerful investors who have been driving the Australian dollar down to damaging levels.

With the dollar hitting another low of US52.12" yesterday - in early trading in London last night it fell to US51.87" - Mr Costello will leave growing anxiety - and a feeling of impotence - about the dollar's effect on rising petrol prices, import costs and interest rates.

The Reserve Bank revealed yesterday that it spent $506 million of its foreign reserves last month in a relatively modest but unsuccessful attempt to prop up the currency. "It's sinking and there's no lifeboat to save it," a Commonwealth Securities economist, Ms Besa Deda, said. "Fifty cents is certainly a level that could be tested."

Efforts to talk up the dollar, including a public defence of the currency by the Reserve Bank Governor, Mr Ian Macfarlane, at the World Economic Forum last month, have failed spectacularly to convince currency traders that the dollar is worth supporting. As one government adviser put it yesterday: "The figures [showing Australia's impressive economic performance compared with the US] are there for anyone who's interested in looking. Maybe we're too small and too far away for them to notice."

Mr Costello will spend four days in New York from Friday, briefing "key corporate and financial investors" on "Australia's strong fundamentals" and "excellent outlook".

He will then attend a G20 finance ministers' meeting in Montreal, where global currency instability is certain to be a topic for discussion.

Traders attributed the weakness in the dollar to the continued strength of the US greenback, growing pessimism about the stability of the Asia-Pacific and relatively poor investment returns here.

But most are mystified as to why the Australian dollar has fallen further than almost any other currency. Apart from share prices, Australia has broadly matched or outperformed the US on key economic indicators over the past five years.

During the past two years, Australia has done even better, prompting the US Federal Reserve to acknowledge our superior productivity rate in a recent report.

Beyond Mr Costello's trip to New York and Montreal, the Government was promising little yesterday to ease the burden of the low dollar and rising petrol prices on consumers.

Petrol prices could rise as much as 5" a litre in the next week due to the low dollar and rising world oil prices.

But the Prime Minister yesterday again ruled out freezing the petrol excise to ease the pressure on motorists.

http://www.smh.com.au/news/0010/18/pageone/pageone11.html

-- Martin Thompson (mthom1927@aol.com), October 18, 2000