April comeback can’t ease pressure on $A

THE Australian dollar was the strongest of the major global currencies during the month of April.

In May, however, the dollar waxed and waned to the point that it actually fell 1 per cent against the US dollar. So far in 2001, of the 132 currencies that were monitored by the Commonwealth Securities Research team, the Australian dollar recorded the 33rd largest fall against the US greenback, dropping by 9.3 per cent.

In the first two months of 2001, only nine out of 132 currencies appreciated against the US dollar. This exemplifies the strength of the greenback. Even last year only seven currencies rose against the US dollar, despite the fact that the US economy is slowing, the technology bubble has burst and the current account deficit is rising.

Even with these conditions applying we have seen the global fund managers continue to pour their investments into the US.

So, unless these same global fund managers change their view of the US economy, the Aussie looks likely to remain under pressure against the US dollar.

The view that Craig James at ComSec research is taking is that the Australian dollar will grind its way to around 56c by the end of the year. For most of the next six months he expects the dollar will remain cocooned in the 50-55 cent range.

He doesn’t rule out the possibility of the dollar testing levels in the short term of 50 cents.

The reasons he cites for the appreciation of the dollar are the expectations of firmer recovery for the Australian economy, a stronger US economy, and global growth fuelling higher commodity prices.

There are substantial short-term risks for the Australian dollar. These are such things as weaker commodity prices and the deteriorating political and economic environment in Asia. Whether we like it or not, the Australian dollar is still seen as a commodity currency and a key gauge of commodity prices, the CRB Futures is at a 13-month low.

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