Australian dollar hits three-month low

Jon Condon, 12/04/2012


The Aussie dollar hit a three-month low yesterday, pushed down by domestic market expectations and international financial developments.

The A$ reached US102.55c yesterday, a slide of more than half a cent on Tuesday’s rate and the lowest currency figure seen since a US102.37c dollar back on January 10. The currency recovered a little ground this morning, opening at just above US103c.

Yesterday’s exchange rate quoted by Westpac was more than US5.5c below where it sat at its recent high-point back in early March, offering beef exporters some respite in a highly competitive global market.

“Who’d have thought that a dollar dropping below 103c would be a positive story?” Meat & Livestock Australia senior analyst Tim McRae said this morning.

He said it was probably domestic, rather than international influences that were taking the lead in influencing currency direction at present.

“The slowdown and talk of interest rate cuts is putting some pressure on the A$, and some people have apparently factored-in cuts already,” Mr McRae said.

“Secondly, commodity prices (both mining and agriculture based) have generally come off the boil a little, which is obviously a big factor as well.”

In outside influences, the US$ was looking a little better, despite setbacks this week in predicted unemployment numbers.

“On the whole, the bad news seems to have dissipated a little, and that includes European economies that have been under considerable stress,” Mr McRae said.

Westpac’s senior manager, Agribusiness Nigel Stewart noted the gradual decline over the past two weeks in the A$/US$ rate, dropping below US103c over the Easter break.

“As many will know, the exchange rate against the US$ is driven by many factors, including Australian and US economic updates and factors like fluctuating interest rates,  business confidence and consumer sentiment,” Mr Stewart said.

The Australian economy had continued to produce weak data over the past fortnight, with home loan approvals dropping by 1.2pc in March, their worst reading since May 2011.

“This coincides with a sharp drop in the AIG Construction Index which showed a clear drop in new building projects, indicating sustained weakness in the construction sector,” Mr Stewart said.

Overall weaker global activity, especially in China, Australia’s number one trading partner, was also weighing heavily on the A$.

“With these factors in mind, A$ /US$ continues to push downwards, as the Aussie starts to struggle against a more robust US currency. With all this taken into account, the greenback could continue to improve against the Aussie in the near future," he said.

Australian Meat Industry Council’s processing director, Steve Martyn said while a trending lower currency offered some relief to exporters, stability in currency value was equally important.

“A constantly moving dollar makes international trading much harder,” Mr Martyn said.
However he warned not to over-simplify currency movement in terms of interpreting its potential impact across the supply chain.

“If it was as simply as reflecting currency movement, we should all have been multi-millionaires when the dollars was trading around 60c, and out-of business when it recently reached 110c. But the reality is that there are a whole range of other factors that influence price. The fixed costs in the processing sector do not change a hell of a lot, regardless of what the dollar does.” 

“But while the dollar continues to fluctuate on a daily basis, at least it is edging in the right direction,” Mr Martyn said.



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