Rates At 0600 GMT
Latest Change
AUD/USD 0.9625 -1.28%
AUD/JPY 74.149 -0.79%
6.50% May, 2013 3.6137% -0.0646
4.50% Mar, 2020 4.0659% -0.1086
10-Yr Spread To U.S. +221 bps -6 bps
SFE Dec 3-Year Futures 96.45 +0.06
SFE Dec 10-Year Futures 95.85 +0.085
SYDNEY (Dow Jones)--The Australian dollar slumped to a new 2011 low Monday, hard hit after a more than 200-point sell-off in the Dow Jones Industrial Average on Friday weighed on Asian stocks, commodities and commodity-linked currencies.
As nervousness over euro-zone instability continued Monday, with Greece acknowledging it will miss its deficit target this year, the Australian dollar continued a move nearly straight downward which began Sept. 1. In just more than a month, the previously bullet-proof currency that had side-stepped prior Greek worries, riots in the Middle East and even a downgrade of the U.S.'s debt rating to reach levels not seen in 30 years, has fallen more than 10%.
The concern after Monday's drop, however, is that given the recent decline has been so quick, few large buyers have set up ready to buy at current levels.
"Most concerning, the gaps between barriers are really getting spread out, which tells me once the downward momentum takes over it can go in big leaps. We're moving into some uncharted territory, at least in terms of recent history," said TD Securities Strategist Roland Randall.
At 0600 GMT, the Australian dollar was at US$0.9625, down from US$0.9750 late Friday, after earlier reaching a new ten-month low of US$0.9592.
Against the Japanese yen, the currency changed hands at Y74.149, down from Y74.743.
Even so, tourist operators, retailers and manufacturers were likely to applaud the sudden drop off in the currency.
The hit to manufacturers has been particularly jarring this year with a Monday report from the Australian Industry Group-PricewaterhouseCoopers showing the country's performance of manufacturing index lost 1 point in September to 42.3--well below the 50 point mark that separates expansion from contraction.
With those three sectors of the country's economy hurting, coupled with the lack of progress in Europe, financial markets are pricing in about five interest rate cuts in the next year from Australia's central bank.
So far, the central bank has dismissed those calls, with the Reserve Bank of Australia widely expected once again to hold rates steady tomorrow and stop well short of preparing markets for the prospect of interest rate cuts. Among the bank's biggest worries is that an ongoing mining boom continues to keep inflation at the top end of its target 2% to 3% band.
"We believe the RBA will hold the policy rate steady in 2011 until the global turmoil passes. However, the tightening cycle will continue once international conditions improve," said Gavin Stacey, chief interest rate strategist at Barclays Capital in Sydney.
-By Geoffrey Rogow, Dow Jones Newswires; +61-2-8272-4686; geoffrey.rogow@dowjones.com
