Dollar Dips, Then Recovers

Sydney Morning Herald

Tuesday April 8, 2008

Clancy Yeates

THE dollar lurched downward yesterday in response to the largest monthly trade deficit on record, before bouncing back in the afternoon.

Having peaked at US92.27c during morning trading, the local currency dropped to US91.79c soon after the announcement of the record trade deficit, which blew out to $3.3 billion for February.

Markets tend to react negatively to poor trade results because the value of exports is an important influence on a currency's value.

Analysts said the initial sell-off represented a knee-jerk reaction, and the dollar regained strength to end the day at US92.06c.

Economists said the deficit was accentuated by extreme weather in mining areas during February, with storms preventing some coal and iron ore exports.

"The market realised the trade numbers were weather related, and they were not a true indication of Australia's trade position," the senior currency strategist at the Commonwealth Bank, Richard Grace, said.

"The trade figures were heavily distorted by the inability to ship exports away, not because of a lack of demand," Mr Grace said.

Australian government bond yields fell to 6.2825 per cent for three-year bonds, and 6.1275 per cent for 10-year bonds.

© 2008 Sydney Morning Herald

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