Money and Metals

An Australian report on that nations' currency. "Investors deserted the dollar yesterday, sending it to a 17-month low amid fears Japanese investors might quit their holdings of local currency securities. The dollar fell to 72.05 US cents at the local market close and was trading at US71.60c last night. It is down 3.3 per cent over the last two weeks and 10 per cent below the peak of 79.7c reached 12 months ago."

"Traders believe the attitudes of international investors towards the Australian dollar are changing as they chase returns in economies where interest rates are likely to rise. 'There is some kind of a shift under way, with the large move over the last couple of days testing the bottom of its range for the last year,' ABN AMRO currency strategist Greg Gibbs said yesterday."

"The Australian dollar has followed the New Zealand dollar, which has plunged 6.7 per cent in the last two weeks against the US dollar."

"'There is concern among fund managers that their total return on Australian dollar bond positions is being eroded in a dramatic fashion,' said David Mozina, a currency strategist at Lehman Brothers in New York. 'What was looking good from a yield perspective has blown up in their face through the currency meltdown.'"

"On the equity market, a weakening in the Australian dollar is yet more good news for the miners who sell their product in US dollars, but generate costs in Australian dollars."

"The currency has been slowly weakening against the US dollar for almost 12 months, but had held steady against the euro and the yen. The biggest change in the market is the expectation that the Bank of Japan will start raising rates in the next 12 months."

"The uridashi market, which allows retail Japanese investors buy securities denominated in high-yielding currencies such as the Australian dollar, has been dormant for the past year, but there is now a large stockpile of securities about to mature. This could add further selling pressure over the year ahead."

"The currency has been weakening despite continued strength in commodity prices, with which it has traditionally moved in tandem. The zinc price has risen by 60 per cent since December while other metals have also risen sharply. National Australia Bank currency strategist John Kyriakopoulos said the currency was being influenced more by the difference between rates here and in other major markets than by commodity markets."

"Australian rates were 3.6 per cent higher than the average of US, European and Japanese rates over 2004, but this margin has fallen to 2.3 per cent and may fall further. Australia usually has high interest rates at times when world commodity prices are high, but the slowdown caused by the end of the housing boom has thrown the economic cycle in Australia out of time with the rest of the world."