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Olympic dollar relief

THE Sydney Olympic Games may provide some short-term relief for Australia’s dollar.

A flood of overseas visitors is expected and they will need to invest in some Australian currency, which some commentators think might pull the dollar out of its US58 cents, 57¢, 56¢ slump.

However, analysts are unsure about what will happen after that.

Chamber of Commerce and Industry senior economist Dan Engles said the Australian dollar was doing some very strange things.

“When US Federal Reserve chief Alan Greenspan announced there would be no interest rate rise, the Australian dollar should have gone up,” Mr Engles said.

“But it went down 2¢.

“Commodity prices are up but the Australian is not responding.”

There are at least two theories about the dollar’s poor performance.

One is the Australian dollar has become linked to the Euro which is also struggling.

The other theory is the financial resources allocated to the Asia Pacific region have all been flowing into Asia.

Mr Engles said during the Asian financial crisis the money had been flowing the other way.

BankWest chief economist Alan Langford said the Australian dollar was trying desperately to stabilise itself.

“Interest rate differentials and the potential interest rate differentials are the biggest games in town,” Mr Langford said.

“We are 0.5 per cent to 1 per cent below the US inflation rate yet the market doesn’t seem to give us any credit.

“I think the RBA is happy the US didn’t raise its interest rate. It gives them the chance to tighten the interest rate differential.”

Mr Langford expects another 0.25 per cent interest rate rise next month.

“We are weak against the big dollar (US$) but weak against the Yen too,” he said.

“I think the market is over optimistically reading Greenspan’s reason for not raising the US interest rate as a ‘soft landing’ for the US economy.

“The markets seem to be looking for more good news in the US economy.”

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