May 23, 2012 9:34 am

Australian dollar sinks to six-month lows

The Australian dollar fell to a six-month low against its US counterpart on Wednesday amid fresh worries about Greece’s future in the eurozone.

The Aussie, viewed by many traders and hedge funds as a proxy for global economic growth, traded as low as $0.9742, a level last touched in November, before recovering to $0.9771.

However, that still left the Australian dollar down 4.4 per cent this year – the worst performance of any major currency – and well adrift of Tuesday’s close of $0.9920.

The fall came after reports – later denied – that Greece was making preparations to leave the single currency, and news the eurozone crisis would only be discussed “at the very end” of the EU leaders’ meeting in Brussels later on Wednesday.

Speculation that Greece could leave the eurozone has grown after an inconclusive general election earlier this month produced gains for anti-austerity parties.

Strategists said most currencies were trading lower against the US dollar because of the Greek concerns. “There’s been a continuing flight into the safety and liquidity of the US dollar today,” noted John Horner, foreign exchange strategist at Deutsche Bank in Sydney.

The Aussie has been under pressure since peaking at $1.08 in March. Concerns about economic growth in China, which is Australia’s largest trading partner, lower commodity prices and turmoil in the eurozone have all weighed on the currency.

The spot price of iron ore, Australia’s biggest export, has fallen 10 per cent since the start of the month, while recent data from China including figures for electricity, rail cargo and bank loans have all pointed toward a steep drop in activity there.

In addition, the Reserve Bank of Australia announced a surprise half-point interest rate cut to 3.75 per cent earlier this month and futures markets are pricing in a further one-point reduction over the next year.

“We are seeing speculative players like hedge funds and bank traders, who are big players in this market, wanting to sell the Aussie dollar. They often do that because they have a view on global growth, commodity prices or China,” explained Warren Hogan, chief economist at ANZ.

However, Joseph Capurso, currency strategist at Commonwealth Bank, said the move in the Aussie over the past seven weeks was not unusual.

“If you look at the trading range over the Aussie over the past three years in a three-month period it’s 9.8 cents. The Aussie is a very volatile currency and we shouldn’t be too surprised when it moves around like this,” he said.

Many economists believe the Aussie, which fell to $0.6100 during the financial crisis, will not fall much further provided the situation in Europe does not worsen. But trading is likely to remain volatile in the run-up to fresh Greek elections on June 17.

“There’s still a good underlying economic story in Australia,” said Mr Hogan. “The resource investment boom ... involves a lot of large companies bringing money into the country to invest.”

The resources investment pipeline in Australia is currently over A$450bn, according to recent Federal budget papers, with more than half of those projects already committed or under construction.

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