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2004
Euro Drags Dollar To 12-month Low
Sydney Morning Herald
Friday June 3, 2005
The Australian dollar touched a year-low yesterday, dragged down by a crippled European currency, but rebounded on positive trade and housing figures.
The dollar sank below US75c for the first time since December as uncertainty surrounding the European Union deepened.A Dutch referendum resulted in a resounding "no" vote for the constitution and was interpreted as a sign of continuing political and economic instability in the region, leading euro investors to sell their holding. Weakness in the euro contributes to US dollar strength, which in turn pushes the Australian dollar lower.A currency strategist at National Australia Bank, John Kyriakopoulos, said yesterday that the euro and the Australian dollar showed a 91 per cent correlation.The fading of crucial dollar supports, such as its yield advantage over the US greenback and high commodity prices, had left it more vulnerable to the slide in the euro, Mr Kyriakopoulos said.At home, the dollar was helped by an announcement by the Bureau of Statistics that Australia's trade deficit halved in April, from $2.6 billion to $1.3 billion, led by significant increases in bulk commodity prices.The bureau also announced a 1.8 per cent rebound in building approvals, indicating a bottoming out of the housing sector."Both sets of better-than-expected data supported the dollar," said ANZ currency strategist Craig Ferguson. "As a result, the Aussie held above US75c."But the dollar closed a third of a US cent weaker at US75.20c.Predicting further declines, Mr Ferguson forecast the dollar would reach US66c by the end of the year. A narrowing interest rate differential, slowing global growth, softening commodity prices and a continually high current account - the impact of the current drought - would drag on the dollar this year, he said.Gains in industrial metals prices also supported the dollar.The basket of 17 commodities tracked by the Commodities Research Bureau's futures index gained 1.2 per cent in one day.Generally viewed as a "commodity currency" because of the large contribution that exports make to the economy, the rise in commodity prices underscored the dollar.
© 2005 Sydney Morning Herald