Australian dollar dips on US housing fears

Australian dollar dips on US housing fears

Sam Holmes December 24, 2008
Article from: Dow Jones Newswires
THE Australian dollar was weaker today as poor US housing data weighed on risk sentiment throughout the Asian session and pre-Christmas trading volumes remained extremely thin.The domestic currency is expected to hold relatively tight ranges in the offshore session tonight, however, analysts believe there is room for more pain trading if not before the end of the year, then at some time in January. Westpac chief currency strategist Robert Rennie said the Australian dollar has been "remarkably resilient" in the face of very weak Asian economic data and equities performance in the last few weeks. "This sort of improved price action that we've seen over the last two or three weeks for the Aussie will start to unravel and potentially quite quickly as we move into next year," Mr Rennie said. By late afternoon, the Australian dollar was trading at US67.91 cents, down from US68.37c late yesterday in domestic trade. Against the Japanese yen, it was trading at Y61.40 from Y61.72. US economic data released overnight showed new home sales fell a smaller-than-expected 2.9 per cent in November from October to its lowest reading since January 1991. However, existing home sales fell at a record monthly pace of 8.6 per cent. The data are yet another piece of the overall data puzzle confirming the dire state of the world's largest economy and weighed on US equities markets and higher-yielding currencies like the Australian dollar. Mr Rennie expects the Australian dollar to find some support around US67.50c in the offshore session tonight but said a break of this level will put support closer to US66c. More broadly, he said a more dramatic fall to US60c beckons in the March quarter of 2009 as investors consider a bleaker year ahead and the prospects of the US Government needing to provide more fiscal aid to shore up automakers. Australian bond futures were mixed with the domestic three to 10-year yield curve flattening, led by falls in longer-dated yields. The March three-year bond futures contract fell 3.5 ticks to 96.56 as Australian equities market shrugged off the negative Wall Street lead. However, 10-year bond futures contracts were 1.5 ticks firmer at 95.90, supported by the weak US housing data. The spread between the implied yields on the three and 10-year bonds fell to 67 basis points from a high of 74 basis points yesterday.