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Dollar down, hits 5-year low

THE dollar has opened lower for the 12th consecutive local session after dropping to a five-year low overnight as the bleak global economic outlook caused investors to abandon the high-yielding currency.
The dollar touched a five-year low of $US0.6454 during the overnight session, but recovered slightly after a number of global central banks eased monetary policy in a coordinated effort to reduce borrowing costs.

At 7am AEDT, the dollar was trading at $US0.6715/21, down a little over one US cent from yesterday’s close of $US0.6832/36.

During the overnight session, the local currency traded between a low of $US0.6454 – its lowest level since May 2003 – and a high of $US0.6942.

Wells Fargo currency strategist Vassili Serebriakov said the large moves and high votality on currency markets were “driven by fear” and heightened risk aversion.

“That’s why we are seeing those exaggerated moves in currencies that are not necessarily reflective of fundamentals but more reflective of market sentiment,” Mr Serebriakov said from New York.

The US Federal Reserve, Bank of England, European Central Bank, Bank of Canada and Sweden’s Riksbank all announced a 50 basis point cut to their official interest rates.

“Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets,” the central banks said.

Inflation pressures had begun to moderate in a number of countries, the central banks said, as the “recent intensification of the financial crisis has augmented the downside risks to growth”.

“Some easing of global monetary conditions is therefore warranted.”

The People’s Bank of China also lowered a key lending rate by 27 basis points.

“I think the move brought some relief to the markets but it’s still clearly too early to say whether this is the beginning of the end for this financial crisis,” Mr Serebriakov said.

Mr Serebriakov said a positive reaction to the central banks’ actions on Asian equity markets today could further support the dollar’s recovery.

“These have been positive developments and currencies such as the Australian dollar do look oversold in the short term,” he said.

The Australian Bureau of Statistics releases labour force data for September at 11.30am AEDT.

News.com.au
9th October 2008

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