12/11/2007 - 15:47

Dollar closes below 90 US cents, bonds stronger

12/11/2007 - 15:47

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The Australian dollar finished weaker today, dipping below 90 US cents for the first time in about three weeks, as the global credit crunch continues to batter high-yielding currencies.

The Australian dollar finished weaker today, dipping below 90 US cents for the first time in about three weeks, as the global credit crunch continues to batter high-yielding currencies.

The decline continued the Australian dollar's downward trend that began during the offshore weekend session.

At 1700 AEDT, the Australian dollar was trading at 89.70 US cents - the first time it has retreated below 90 since October 24 - and well down from Friday's local close of 92.81.

During the day, it traded between a low of 89.10 US cents and a high of 90.88, which was reached as the Reserve Bank of Australia released its latest quarterly statement on monetary policy.

The RBA cemented its inflation forecasts, saying inflation was now likely to exceed the bank's target band of between two and three per cent over the next two quarters.

The RBA also said both underlying and CPI inflation would remain close to three per cent throughout 2008 and 2009.

Its outlook indicated official interest rates could rise further in the months ahead, which would normally be supportive of the Australian dollar.

But Commonwealth Bank of Australia chief currency strategist Richard Grace said other factors dominated on the day.

"Dominating the Aussie today (were) mainly an increase in risk aversion (and) a continuation of the declining equity markets theme," Mr Grace said.

The Australian dollar has slipped about 4.6 per cent from a high of 93.99 US cents reached after the local close on November 7.

Mr Grace said the drop was a "healthy correction", but not one that changed the currency's robust outlook.

"That's a reasonably significant correction but it's not a ridiculous correction," Mr Grace said.

"We're not forecasting a bear market at this stage, so I don't think the Aussie should collapse."

Mr Grace believes the Australian dollar will reach 92.50 US cents by the end of December.

The Australian dollar closed at 98.98 yen, down from Friday's close of 104.53 yen, and at 61.26 euro cents, down from Friday's 63.04 euro cents.

In other currencies, the euro was at 1.4640 US dollars, down from Friday's close of 1.4724, and at 161.56 yen, down from 165.84 yen.

The US dollar closed the local session at 110.36 yen, down from 112.65.

Meanwhile, the Australian bond market closed firmer today as debt futures prices rallied on the back of the RBA's relatively bearish statement on monetary policy.

At 1630 AEDT, the yield on the Commonwealth Government February 2017 bond was at 5.970 per cent, down from Friday's close of 6.025 per cent, while the August 2010 bond was at 6.610 per cent, down from 6.690.

On the Sydney Futures Exchange, the December 10-year bond futures contract price was at 94.005, up from Friday's close of 93.955, while the December three-year contract price was at 93.435, up from 93.360.

Grange Securities chief economist Stephen Roberts said commentary from the RBA suggested an interest rate rise before the end of the year was now less likely, boosting demand for bonds which were bid strongly immediately after the statement.

The 90-day bank bill rate finished at 7.120 per cent, up from 7.107 per cent yesterday, while the 180-day bank bill rate was at 7.293 per cent, down from 7.302 per cent.

At 1600 AEDT, the Reserve Bank of Australia's trade weighted index was at 69.4, down from yesterday's close of 72.1.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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