08-09-2008, 09:13 AM
Aussie dollar falls back to Earth
THE Australian dollar has crashed to its lowest level in six months, just above US89c, as the currency enters its longest losing streak since 1980.
The dollar's dive has been driven by investors' crumbling confidence in the Australian economy, tumbling commodity prices and growing fears the global economy is facing a major slowdown - or even a possible recession.
The financial markets' certainty that the Reserve Bank will lower interest rates next month has also combined with a strengthening US dollar to force economists into a major backflip on predictions of parity with the greenback.
Only weeks after forecasting parity by the end of the year, yesterday economists said it was now "crystal clear" the parity party has been cancelled, at least for now.
After nine consecutive days of falls, the Aussie has collapsed from a peak last month of US98.50 to a bottom in late trading of US89.14 - its lowest level since early February.
AMP Capital Investors chief economist Shane Oliver said the combination of falling interest rates and a correction in commodity prices suggested the Aussie is in for further falls.
"The ride could be pretty rough over the next six months with a fall back to its January low of around US85c a distinct possibility," Dr Oliver said.
"The long-term trend in the Aussie is likely to remain up though, in response to the long-term rising trend in commodity prices."
Foreign currency traders renewed confidence in the US economy's ability to crawl its way out of the recessionary hole it fell into as a result of the credit crunch has seen the Aussie loss ground rapidly.
Sonray Capital Markets chief economist Clifford Bennett said there is a "freight train" momentum against the Australian dollar at the moment.
"RBA rate cut expectations have been the major component of this currency collapse," he said.
Mr Bennett said a recovery in global commodity prices could give the currency a much-needed bounce over the next few months.
Citigroup has also forecast that the global markets have turned "too bearish" on commodity prices.
Chief economist Paul Brennan is forecasting commodity prices will rebound - especially coal, copper and aluminium prices - pushing the Aussie back towards the US92-94c range in the months ahead.
In recent weeks investors have been dumping commodities such as gold and oil that have, until recently, been used as a hedge against a faltering US dollar and this has been a double negative for the Aussie.
The outlook for Australian mining companies has dimmed and the currency has been battered by the massive squaring of all the long bets by investors against the US dollar. Most economists said commodity price falls have blown away the speculative froth but the fundamental demand outstrips supply and prices.
Westpac is forecasting the Aussie will remain at or below the US90c level for the rest of the year before an increase to about US92c by March next year.
News.com.au
THE Australian dollar has crashed to its lowest level in six months, just above US89c, as the currency enters its longest losing streak since 1980.
The dollar's dive has been driven by investors' crumbling confidence in the Australian economy, tumbling commodity prices and growing fears the global economy is facing a major slowdown - or even a possible recession.
The financial markets' certainty that the Reserve Bank will lower interest rates next month has also combined with a strengthening US dollar to force economists into a major backflip on predictions of parity with the greenback.
Only weeks after forecasting parity by the end of the year, yesterday economists said it was now "crystal clear" the parity party has been cancelled, at least for now.
After nine consecutive days of falls, the Aussie has collapsed from a peak last month of US98.50 to a bottom in late trading of US89.14 - its lowest level since early February.
AMP Capital Investors chief economist Shane Oliver said the combination of falling interest rates and a correction in commodity prices suggested the Aussie is in for further falls.
"The ride could be pretty rough over the next six months with a fall back to its January low of around US85c a distinct possibility," Dr Oliver said.
"The long-term trend in the Aussie is likely to remain up though, in response to the long-term rising trend in commodity prices."
Foreign currency traders renewed confidence in the US economy's ability to crawl its way out of the recessionary hole it fell into as a result of the credit crunch has seen the Aussie loss ground rapidly.
Sonray Capital Markets chief economist Clifford Bennett said there is a "freight train" momentum against the Australian dollar at the moment.
"RBA rate cut expectations have been the major component of this currency collapse," he said.
Mr Bennett said a recovery in global commodity prices could give the currency a much-needed bounce over the next few months.
Citigroup has also forecast that the global markets have turned "too bearish" on commodity prices.
Chief economist Paul Brennan is forecasting commodity prices will rebound - especially coal, copper and aluminium prices - pushing the Aussie back towards the US92-94c range in the months ahead.
In recent weeks investors have been dumping commodities such as gold and oil that have, until recently, been used as a hedge against a faltering US dollar and this has been a double negative for the Aussie.
The outlook for Australian mining companies has dimmed and the currency has been battered by the massive squaring of all the long bets by investors against the US dollar. Most economists said commodity price falls have blown away the speculative froth but the fundamental demand outstrips supply and prices.
Westpac is forecasting the Aussie will remain at or below the US90c level for the rest of the year before an increase to about US92c by March next year.
News.com.au