Australian Dollar Falls to Record

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Wed, 22 Nov 2000, 9:33am EST Australian Dollar Falls to Record; May Drop to 48 U.S. Cents By Angela Jones

Sydney, Nov. 22 (Bloomberg) -- The Australian dollar fell to a record against the U.S. dollar as investors dumped the currency amid expectations demand for U.S. dollars could drive it as much as 2 U.S. cents lower in coming days.

The Australian dollar, or Aussie, fell as low as 50.85 U.S. cents, from 51.32 cents yesterday, banks said. That's the lowest since it was allowed to trade freely in December 1983. Analysts said the currency may decline in coming days, unless there's a joint central bank purchase of the euro, the currency that has led the Australian dollar down all year.

``Unless we see concerted joint intervention in the euro and the Aussie coat-tails on that, we could see 50-to-48 cents next week,'' said Greg McKenna, currency strategist at National Australia Bank Ltd. ``The U.S. dollar has been strong against the board -- a who's who of sellers came looking for the Aussie.''

The Australian dollar has tumbled more than 22 percent against the U.S. dollar this year, as investors are lured to the higher returns offered in the U.S. Foreign investors have cut their holdings of Australian dollars to the smallest amount in two years, according to Merrill Lynch & Co.'s global investor survey for the fourth quarter.

Losing Bet

Analysts said one or two institutions sold their Australian dollar holdings after failing to cash in on a ``double-no-touch'' trade -- where an institution receives a large payout if the currency remains between two designated levels. They sold when the currency touched 51.10 cents, a level below which they bet it would not fall.

``There was a large double-no-touch in the market that was due to expire today or tomorrow,'' said Robert Rennie, currency strategist at Westpac Banking Corp. ``You buy a stock which says, if we don't touch 50 (cents) on the downside or a certain level on the upside, you get a massive payout.''

National Bank's McKenna said the sellers were U.S. and Swiss.

Also weighing on the currency, the euro fell to its lowest level in three weeks after German business confidence declined for a fifth consecutive month in October. The single European currency had its biggest drop in a month, to 84.38 U.S. cents from 85.05 yesterday touching its lowest since Oct. 31 at 84.14 cents.

The Munich-based Ifo institute said its October western German index of business confidence fell to a one-year low of 97.2 from 98 the previous month, falling short of economists' forecasts f 97.6, according to a Bloomberg News survey.

Australia's dollar and the euro had a correlation of 0.92 in the past six months. A figure of 1.0 means they trade in lockstep and a reading above 0.75 is regarded as statistically significant.

The drop in Australia's currency also comes as the Japanese yen and the Korean won are at nine-month- and one-year lows, respectively, potentially crimping business from two of Australia's five biggest export markets, analysts said.

``There is some concern over Asia and growth in Asia,'' said Greg Gibbs, a foreign exchange and fixed income strategist at Westpac Banking Corp. in New York. In addition, flagging German business confidence and recent weakness in world stock markets are fueling concern about the outlook for global growth in general, he said.

If world growth cools, that may hurt the Australian currency by reducing demand for commodities, which make up about two-thirds of Australia's export earnings.

The New Zealand dollar has dropped 24.7 percent against the U.S. dollar since the start of the year. It fell today to 39.27 U.S. cents, from 39.54 yesterday, less than a half-cent above its record low of 39 cents.

http://quote.bloomberg.com/fgcgi.cgi?mnu=news&ptitle=Top%20Financial%20News&tp=ad_fin&T=au_storypage99.ht&s=AOhruiBQtQXVzdHJh

-- Martin Thompson (mthom1927@aol.com), November 21, 2000


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