WSJ:Australian Dollar Down Late, Hit By European Downgrades
Rates At 0420 GMT
Latest Change
AUD/USD 1.0277 -0.42%
AUD/JPY 78.963 -0.31%
6.25% Apr, 2015 3.1768% -0.1322
5.50% Apr, 2023 3.9101% -0.1412
10-Yr Spread To U.S. +196 bps +14 bps
SFE Mar 3-Year Futures 96.87 +0.14
SFE Mar 10-Year Futures 96.25 +0.15
SYDNEY (Dow Jones)--The Australian dollar dipped Monday, hurt along with regional equities by a late Friday decision by Standard & Poor's to downgrade nine European nations.
The wave of rating downgrades that hit France and eight other euro-zone nations was particularly harmful to the risk-sensitive Australian dollar as the move cast fresh doubts over the monetary union's ability to bail itself out of financial crisis and rescue Greece.
Even so, the Australian dollar recovered some of its initial losses over the course of the session, with Greg Gibbs, a currency strategist with RBS in Sydney, noting that even if Europe continues to face steady pressure and the global economy slides, the local currency could still perform well.
"We expect the (Australian dollar) to continue to prove resilient to a developing cyclical downturn in the first half of 2012. We would not be surprised if in fact it rises even in a below trend global growth environment," said Gibbs, citing the impact of a mining boom and demand for Australia's AAA-rated debt.
At 0420 GMT, the Australian dollar was trading at US$1.0277, down from US$1.0320 late Friday but up from a session low of US$1.0255. Against the Japanese yen, the Australian currency changed hands at Y78.963, down from Y79.205.
Gibbs projected the pair at US$1.0300 in the first half and US$1.1000 at year end.
On Australia's shores, the economic picture was largely a mixed bag on Monday with the country's market providing further signs of improvement when a report showed housing finance demand in November beat expectations. But any positive sentiment was partly offset by a declining measure of job advertisements ahead of a key labor market report on Thursday.
"We expect that the unemployment rate could drift higher as we progress through this year - towards 6%, as weaker labor market conditions continue," said Janu Chua, an economist at St. George Bank.
Of more concern for fixed income traders, a strategist at Australia and New Zealand Banking Group said on Monday that Australia's government bonds could face some selling pressure in the short term even as the country remains one of the few large, sovereign AAA-rated issuers remaining in the world.
"Greater risks for the global growth outlook will probably mean some underperformance versus U.S. 10-year bonds in the near-term after the spread to (Australian government 10-year bonds) moved into 170 basis points recently," said ANZ, targeting a pull-back to 210 basis points to 215 basis points.
-By Geoffrey Rogow, Dow Jones Newswires; +61-2-8272-4686; geoffrey.rogow@dowjones.com
