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By Candice Zachariahs
Oct. 28 (Bloomberg) -- The Australian dollar plunged to a five-year low against the greenback, as concern over a global recession led investors to buy the U.S. dollar as a safe haven. New Zealand's currency gained.
The Reserve Bank of Australia bought its own currency for the third day as it came close to dropping below 60 U.S. cents for the first time since April 2003. Australia's currency slid against the yen for a sixth session as U.S. stocks declined after the Standard & Poor's 500 Index swung between gains and loses at least 20 times during the day.
Carry-trades and commodities ``have previously been big supporting factors for the Aussie,'' said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia. ``They're being pared back in the global margin call that we're seeing being unwound now. We see more downside pressure to the Aussie,'' he said referring to the currency by its nickname.
The Australian dollar fell for a sixth day, dropping to 60.09 U.S. cents, the weakest since April 2003, before trading at 60.14 U.S. cents as of 8:04 a.m. in Sydney from 60.58 cents late in Asia yesterday. It fell 0.7 percent to 55.71 yen from 56.11 yen yesterday.
New Zealand's dollar gained 0.3 percent to 54.19 cents from 54.01 in Asian trading yesterday. It bought 50.14 yen from 50 yen.
Australia's dollar has lost 37 percent against the yen in the past month and New Zealand's is 31 percent weaker as investors bought back Japan's currency borrowed in so-called carry trades used to purchase the South Pacific nations' assets.
RBA Intervention
The central bank intervened in the market, a spokesman for the Sydney-based RBA said today by phone. He declined to be identified. The intervention came amid similar circumstances to those yesterday and on Oct. 24, when the bank ``provided liquidity,'' according to the spokesman.
Australia's currency is the worst-performer of the world's 16 most-active currencies against the dollar and yen in the past month as investors have dumped equities amid widespread concern that the global economy will fall into recession.
The currency rallied briefly yesterday after the Group of Seven expressed concern over the ``recent excessive volatility'' in the exchange rate of the yen.
``We expect any bounce to be quite temporary'' as a result of intervention, said David Forrester, a currency economist at Barclays Capital, in Singapore yesterday. ``There's no quick fix that policy makers can undertake to alleviate the problems which currently are impacting on foreign-exchange markets.''
Benchmark interest rates are 6 percent in Australia and 6.5 percent in New Zealand, compared with 0.5 percent in Japan and 1.5 percent in the U.S. The differences in yield have attracted investors to the South Pacific nations' assets. The risk in such trades is that currency market moves will erase profits.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
Oct. 28 (Bloomberg) -- The Australian dollar plunged to a five-year low against the greenback, as concern over a global recession led investors to buy the U.S. dollar as a safe haven. New Zealand's currency gained.
The Reserve Bank of Australia bought its own currency for the third day as it came close to dropping below 60 U.S. cents for the first time since April 2003. Australia's currency slid against the yen for a sixth session as U.S. stocks declined after the Standard & Poor's 500 Index swung between gains and loses at least 20 times during the day.
Carry-trades and commodities ``have previously been big supporting factors for the Aussie,'' said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia. ``They're being pared back in the global margin call that we're seeing being unwound now. We see more downside pressure to the Aussie,'' he said referring to the currency by its nickname.
The Australian dollar fell for a sixth day, dropping to 60.09 U.S. cents, the weakest since April 2003, before trading at 60.14 U.S. cents as of 8:04 a.m. in Sydney from 60.58 cents late in Asia yesterday. It fell 0.7 percent to 55.71 yen from 56.11 yen yesterday.
New Zealand's dollar gained 0.3 percent to 54.19 cents from 54.01 in Asian trading yesterday. It bought 50.14 yen from 50 yen.
Australia's dollar has lost 37 percent against the yen in the past month and New Zealand's is 31 percent weaker as investors bought back Japan's currency borrowed in so-called carry trades used to purchase the South Pacific nations' assets.
RBA Intervention
The central bank intervened in the market, a spokesman for the Sydney-based RBA said today by phone. He declined to be identified. The intervention came amid similar circumstances to those yesterday and on Oct. 24, when the bank ``provided liquidity,'' according to the spokesman.
Australia's currency is the worst-performer of the world's 16 most-active currencies against the dollar and yen in the past month as investors have dumped equities amid widespread concern that the global economy will fall into recession.
The currency rallied briefly yesterday after the Group of Seven expressed concern over the ``recent excessive volatility'' in the exchange rate of the yen.
``We expect any bounce to be quite temporary'' as a result of intervention, said David Forrester, a currency economist at Barclays Capital, in Singapore yesterday. ``There's no quick fix that policy makers can undertake to alleviate the problems which currently are impacting on foreign-exchange markets.''
Benchmark interest rates are 6 percent in Australia and 6.5 percent in New Zealand, compared with 0.5 percent in Japan and 1.5 percent in the U.S. The differences in yield have attracted investors to the South Pacific nations' assets. The risk in such trades is that currency market moves will erase profits.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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