Falling $AUD

[Maka]

With thanks to the ABC -

US improvement main reason for Aussie dollar dive
By online business reporter Michael Janda
Updated Fri May 17, 2013 6:23pm AEST


Currency analysts say renewed confidence in the US economic recovery is combining with increasing worries about Australia's economic outlook to push the local currency down against the greenback.

The Australian dollar has fallen about 6 cents against the US currency in the past two weeks, with more than a cent of that fall happening over the past day.

That took the local currency to an 11-month low against the greenback of 97.36 US earlier today - a trough which it was close to matching late on Friday afternoon, at 97.48 US cents by 4:41pm (AEST).

Westpac's senior currency strategist Sean Callow says investors are expecting the US central bank to start winding back its stimulus program, pushing the greenback higher and the rapidly growing supply of US dollars slows down.

"The [rise of the] US dollar is probably the main driver of it [the fall in the Australian dollar], and particularly nerves over whether the Fed might start to reduce some of its very generous monetary policy, its money printing effectively," he told ABC News Online.

The fact that we have seen the currency decline, and if it stays at these levels, suggests that the pressure's off the Reserve Bank to cut even further in the coming months.
Citi senior economist Joshua Williamson
"But there's no doubt the Aussie is underperforming many other currencies for specific Aussie reasons."

Citi's senior economist Joshua Williamson says, aside from expectations of a reduction in US money printing later this year, the Australian dollar has finally been hit by falling commodity prices, evidenced by its fall against a wide range of other currencies.

"It has probably been overvalued, certainly against commodity prices, and currencies like the euro and the yen had been much weaker to start with, so its probably an easier play when we start seeing that trend decline in the Aussie dollar for investors to actually jump on board and continue to drive it lower against a whole basket of currencies," he said.

'Follow that momentum'
Sean Callow agrees that an element of herd mentality has helped push the Australian dollar lower over the past couple of weeks, particularly after rumours surfaced of large currency speculators, such as George Soros, making bets against the Aussie.

"Once you start to get to some of the lowest levels we've seen since the middle of last year, then people do just follow that momentum," he said.

"So some people don't necessarily need any fresh news, they just need to see the Aussie is not bouncing."

Mr Callow expects to see a bounce in the Australian dollar over the next month or two as investors and corporations take advantage of the low Australian dollar to buy the local currency.

The last time the dollar dipped to these levels, many businesses took the chance to covert some of their foreign currency holdings into Australian dollars, or lock in currency hedges at the lower exchange rate.

While the fall in the dollar is excellent news for trade-exposed business in one sense, economists say it is also likely to take the pressure off the Reserve Bank to cut interest rates again in the near term.

"They have previously said that one of the reasons why they've taken rates so low is to partly offset for the contractionary effect of the currency," Mr Williamson told ABC News Online.

"The fact that we have seen the currency decline, and if it stays at these levels, suggests that the pressure's off the Reserve Bank to cut even further in the coming months."

cheers, Maka