Australia: Currency woes raise recession fears

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Wednesday, March 14 2:31 PM SGT

Currency woes raise recession fears SYDNEY, March 14 (AFP) - The Australian dollar slumped to a new low, drawn down by a stalled local economy that has fallen off the radar screens of international investors, economic analysts said Wednesday.

The dollar is now widely expected to fall below the psychological threshold of 50 US cents after touching a historic low of 50.21 cents in overnight offshore trading. It was perched precariously at 50.28 US cents at the close of local trading Wednesday.

Compounding the dollar's woes is the collapse of consumer sentiment as households slash discretionary spending in anticipation of a recession.

Senior economic analysts here say the reason for the dollar's downwards tragectory is simple: a weakening local economy has little to offer in terms of returns for international investors. And that means there is little demand for the Aussie dollar.

A leading private barometer of economic activity, the joint Westpac Bank-Melbourne Institute Index of Consumer Sentiment, recorded a record monthly fall of 15.4 percent for March.

"If Australia is to avoid recession, it will require consumers to hold their nerve," Commonwealth Securities chief economist Craig James told AFP.

Besides the fact Australia's slowing economy was now a "cheap" place in which to invest, "investors must have a reason to buy the currency," he said.

A global slowdown has also lent the greenback more support than economic fundamentals in the United States would otherwise have done, he said.

"Certainly we have seeen over the last 24 hours it's not just Australian dollar weakness, but US dollar strength," James said.

"Australia is small on the global scene. It does appear fund managers have gone underweight in terms of Australia because of our soggy economic performance of late."

BT Funds Management chief economist Chris Caton told AFP that Australia is "just not on the radar screen."

"We are just way too undervalued at the moment. Nobody is really interested in the Australian dollar now," he said.

Although the dollar weakened before the local economy went into a 0.6 percent reverse during the December quarter, the dominant issue now was the fundamental weakening of Australia's economy, Caton said.

Currency dealers here expect the dollar to continue its descent below 50 US cents.

"I don't think it's ready yet to take the big step but it's that close now it's like a wet paint sign -- you want to reach out and touch it," Macquarie Bank's divisional director of foreign exchange, Geoff Bowmer, said.

As gloom envelops both the domestic economy and the dollar, the only light appears to be Australia's export performance, spurred by the currency's weakness.

Export earnings by the Australian minerals and energy sector soared to a record 14.7 billion dollars (7.35 billion US) in the December quarter.

The result was an increase of 11 percent over the previous quarter and 42 percent on the December 1999 quarter, according to the Australian Bureau of Agricultural and Resource Economics.

http://asia.dailynews.yahoo.com/headlines/business/afp/article.html?s=asia/headlines/010314/business/afp/Currency_woes_raise_recession_fears.html

-- Carl Jenkins (somewherepress@aol.com), March 14, 2001


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