Dollar sinks below US50c

By STEPHEN DABKOWSKI, JAMES CHESSELL and FLEUR LEYDEN Thursday 15 March 2001

The Australian dollar made history last night, tumbling below 50 US cents for the first time after consumer confidence slumped to a nine-year low.

The dollar dipped as low as 49.87 US cents just after 8pm in response to heavy selling by European investors.

The downward spiral was also influenced by a slump in the euro, which took other currencies like the Australian dollar with it.

A spokeswoman for Prime Minister John Howard declined to comment. Shadow treasurer Simon Crean said: "It's bad news. It means that the price of petrol, the price of every imported good will be more expensive."

Mr Crean said that six years ago, Treasurer Peter Costello said the value of a nation's economy was mark of how the rest of the world judged an economy. Then, the Australian dollar was worth more than 70 US cents. "Well, Mr Costello, what mark is the rest of the world giving you when the dollar now has a 4 in front of it, instead of a 7?" Mr Crean said

Dealers warned that the dollar could drop to 48 US cents within days. After slipping below 50 US cents at 8.02pm, it bounced back above the psychological mark five minutes later.

The Australian dollar is now the world's second-worst-performing currency after the Turkish lira this year - falling 18 per cent in the past 12months. With last night's fall, the currency had lost 54 per cent of its value since it was floated in December, 1983. "We're in uncharted territory now," said Besa Deda, an economist with Commonwealth Securities. "The dollar could be in free-fall. There's little reason to buy Australian dollars. As a result it will continue to fall.

"I think it's headed for 49.50 US cents. The outlook is grim. There's nothing to support the Australian dollar. It needs a circuit breaker and there's not one in sight."

The dollar fell after the release of the Westpac-Melbourne Institute index of consumer expectations, which registered a fall of 15 per cent in response to the weak December-quarter growth figures.

Concerns about the pessimistic outlook for the economy is raising expectations in financial markets that the next move by the Reserve Bank at its April board meeting will be to reduce rates by half a percentage point - rather than the quarter of a percentage point rate cut widely expected.

The catalyst for another sell-off in the dollar could be the release this morning of the February labor force data - expected to show a fall in jobs of between 15,000 to 20,000.

"Pessimism reins in the Aussie dollar," said Greg McKenna, a currency strategist at the National Australia Bank. "The consumer confidence data was another excuse for the bears to sell. Investors are looking for any reason to sell."

Nervousness also continued to dog the sharemarket as jittery investors questioned the future earnings of Australian companies.

with DARREN GRAY

http://www.theage.com.au/news/2001/03/15/FFXYOU9W9KC.html

-- Martin Thompson (mthom1927@aol.com), March 14, 2001