$A buying fails to cheer pessimists

By Matt Wade

The currency requirements of local corporations piloting multi-billion offshore deals propped up the embattled dollar again yesterday, but many currency pundits remain pessimistic about its short-term future.

The dollar sank below US52c yesterday morning but a burst of buying sent it back up more than half a cent in a matter of minutes.

Traders said continued activity related to National Australia Bank's sale of its US Michigan National Corp bank to ABN Amro Bank and possible activity associated with Shell's tilt at Woodside Petroleum were responsible for the sharp move higher.

Earlier this week speculation in the market centering on NAB's seeking to protect its exposure to currency movements ahead of settlement of the $5.29 billion sale of its US bank Michigan National helped save the dollar from falling below the psychologically loaded US50c mark.

Even so, it reached a new all-time low of US50.70c on Wednesday.

Macquarie Bank currency strategist Ms Jo Masters said she was surprised that it managed to avoid a dip into the US49c region during the past few days.

"I must admit when we were at US50.70c I thought we were going to US49.80c," she said. "In the end it was saved by this one-off, non-market-related factor, which probably doesn't instil you with an awful amount of confidence looking ahead."

Westpac currency strategist Mr Robert Rennie said the dollar could struggle next week when NAB's demand for local dollars dried up. "I don't think we have necessarily seen the absolute low for the Aussie," he said.

The dollar closed yesterday at US52.15c, down slightly on the day before and virtually in line with the previous Friday.

A swag of domestic economic data is due out next week, including retail spending, credit and trade, along with an appearance by the Reserve Bank Governor, Mr Ian Macfarlane, before a parliamentary committee. But their impact on the dollar is expected to be limited, with sentiment dominated by offshore factors.

Developments in the US presidential election are likely to remain a factor. Currency investors believe a Bush victory will be positive for the US dollar and therefore developments that point to a Republican triumph could renew pressure on the Australian dollar.

Motor vehicle registrations fell 5.1 per cent in October, the Bureau of Statistics reported, providing a further sign that growth may be moderating. It was the third monthly fall in registrations as the post-GST surge in sales continued to unwind. Registrations were down 17 per cent since July but still up nearly 5,000 on the same time last year.

http://www.smh.com.au/news/0011/25/business/business3.html

-- Martin Thompson (mthom1927@aol.com), November 24, 2000

Answers

Never a dull moment for little Aussie battler better known as the dollar

By Steve Burrell

Cliches are a dime a dozen when it comes to our struggling currency, but this week the Australian dollar really did go for a roller- coaster ride.

In five dramatic days of volatility, the $A veered from gloom to euphoria, plumbing its lowest depths and then almost immediately soaring to stage its biggest one-day rise in two years.

The wild ride came as the dollar was buffeted by the impact of political events, economic news and big business deals here and on the other side of the world.

It began late on Monday, when traders say the Reserve Bank, which had been buying Australian dollars at about US51.8¢ to prop up the currency, withdrew its standing bids from the market to see how well the Little Aussie Battler could stand on its own.

The answer was not at all well: the $A almost immediately dropped US0.5¢ to US51.45¢, perilously close to its then all time low of US51.10¢.

After limping through Tuesday trapped below US51.50¢, the dollar fell off the cliff again late in the evening when figures on German business confidence came in slightly weaker than expected.

The resulting fall in the euro spilt over into $A selling, driving it down to a new record low of US50.85¢ and breaking the psychologically important 50¢ barrier for the first time.

Plunging as low as US50.85¢, it had lost more than US1¢ in 24 hours.

Worse was to come. By mid-morning Wednesday it had hit another all time low of US50.70¢, with many analysts tipping an inevitable slide below the US50¢ mark.

But almost immediately, a lifeline came from a distant and unexpected source, in the form of a court ruling in Florida favourable to the United States presidential aspirant Mr Al Gore.

Because markets saw a Gore victory as bad for the US dollar - and therefore good for the currencies such as the $A struggling against its strength - the $A took a kick up from the news that Gore was back in the race.

Reinforcing this upward surge was the impact on Wednesday afternoon of the National Australia Bank buying $A and $A options as it repatriated $US funds from its $5.3 billion sale of its Michigan National Bank in the US. Together they pushed the $A above US52¢ in early European trading .

The climb continued on Thursday as further NAB purchases drove the currency as high as US52.9¢ - more than US2¢ higher than its nadir barely 24 hours before.

But wary of the "one-off" factors behind the dollar's rapid recovery, profit takers then baled out, taking it back down by more than US0.5¢ in afternoon trading.

Even with this, it was the biggest one-day rise for the $A in two years.

Yesterday saw the $A rising and dipping in early offshore trade above US52¢.

This was before more NAB buying pushed the $A up sharply by more than US0.5¢.

But it again subsided to end local trading at $US52.15¢ - almost exactly where it finished the previous week.

http://www.smh.com.au/news/0011/25/national/national9.html

-- Martin Thompson (mthom1927@aol.com), November 24, 2000.