Dollar falls on recession fears
THE Australian dollar was weaker at noon, as investors sold commodities-driven currencies on ongoing worries that a global recession will demand for raw materials.
The domestic unit has depreciated nearly 37 per cent since hitting a post-float high of US98.49c in mid-July.
At 12noon (AEDT), the Australian dollar was trading at $US0.6212/17, down from Friday’s close of $US0.6388/94.
During the morning, the local currency moved between $US0.6126 and $US0.6250.
Citigroup managing director of economics Stephen Halmarick said the deteriorating outlook for the world economy has hit commodities-driven currencies hard, including the Australian dollar.
On Friday night, the Australian dollar slumped to US60.57c, its lowest point since April 15, 2003, when it hit US60.30c.
Investor sentiment has been hit by the downturn in the global economy, reflected in the ongoing falls in share markets and lower commodities prices.
A measure of 19 commodity futures, the CRB Reuters-Jefferies index, continued its fall to close 3.22 per cent lower on Friday night. It was the gauge’s lowest close since late 2003.
“That is on continued fears of a global recession,” Mr Halmarick said.
“And what that implies for commodity exporting countries.”
Even more dramatic is the local dollar’s decline against the Japanese currency, where it sank to a post World War II low of 55.10 yen on Friday night.
Also on Friday night, the Reserve Bank of Australia (RBA) bought Australian dollars during offshore trading to provide some liquidity in the market.
It was the third time the central bank has intervened in the foreign exchange market since 2001.
“We’re not defending any particular level, we’re providing liquidity,” a RBA spokesman said.
Mr Halmarick said the Australian’s dollar bounce of nearly US1.5c from Friday night’s low indicated the RBA’s action had a short-term effect.
“It looks like it has done the job in the near-term,” Mr Halmarick said.
With little domestic data due this week, Mr Halmarick said the Australian dollar would be at the mercy of global sharemarkets and investor sentiment.
“The outlook for both is not particularly good,” he said.