WSJ:Australian Dollar Down Late As Global Markets Gripped By Fear
Rates At 0630 GMT
Latest Change
AUD/USD 1.0447 -3.05%
AUD/JPY 82.06 -3.01%
6.50% May, 2013 3.7387% -0.4702
4.50% April, 2020 4.4357% -0.2304
10-Yr Spread To U.S. +217 bps -7 bps
SFE Sep 3-Year Futures 96.32 +0.46
SFE Sep 10-Year Futures 95.53 +0.26
SYDNEY (Dow Jones)--The Australian dollar was sharply weaker late Friday caught up in a global market maelstrom fanned by a massive fall in U.S. stocks Thursday amid fears the U.S. economy is slowing quickly.
Australian 3-year government bond prices posted their biggest one-day rise since 1991 as investors rushed en masse to the safety of risk free assets. Australian stocks fell 4%, the biggest drop in two and half years.
All eyes are on the release of U.S. employment data later Friday which could see global confidence further rattled if it shows the world's biggest economy is again shedding jobs.
Economists fear that if the U.S. economy slides back into recession, policy makers won't have the fire power in the budget or through interest rates to bring it back to life. The prospect of a sustained slowdown in the U.S. would have consequences for Europe which is in the midst of its own debt crisis.
Australian government bond prices climbed sharply as traders priced in 125 basis points of interest rate cuts by the Reserve Bank of Australia by 2012.
At 0630 GMT, the Australian dollar was at US$1.0447, down from US$1.0665 late Thursday and off a 30-year high of US$1.1080 last week. Against the Japanese yen, the Australian dollar was at Y82.06, down from Y84.65.
ANZ Bank's head of Australian economics Ivan Colhoun said the while the preconditions for an interest rate cut aren't yet in place, the prospect can't be ruled out as global markets continue to spiral lower.
The RBA could move to cut interest rates if global debt markets become dislocated and/or global equity markets drop sharply, pulling commodity prices lower, he said.
Paul Bloxham, chief economist at HSBC, said the RBA is between a rock and hard place as local inflation pressures remain real, but the world environment is increasingly weak.
"If global financial conditions get significantly worse, and particularly if we start to see this in macroeconomic conditions, the risks will start to move the RBA's central forecast for inflation, perhaps obviating the need to raise rates," he said.
Earlier Friday, the RBA announced it had cut Australia's growth forecasts for 2011 but it expects the economy to spring back in 2012. The economy is expected to grow by 2.0% in 2011 (year average) compared to its forecast in May of 3.25% growth. Inflation is expected to remain a nagging problem, lurking at or above 3.0% for some year.
--By James Glynn, Dow Jones Newswires; 61-2-8272-4685; james.glynn@dowjones.com
