Aussie Dollar Bolts Towards 5-1/2 New High

September 22, 2003

The Australian dollar was riding high at noon after racing to just below a five and a half year high in morning trade as the United States dollar slumped heavily across global markets.

The Australian dollar had eased slightly at noon after posting a high of $US0.6836 this morning.

At 1200 AEST the local unit was trading at $US0.6794/00 compared with Friday's close of 0.6679/84.

The Australian currency had gained more than one and a half US cents since its previous close and looked capable of piercing a five and a half year high of $US0.6845 - set in July - as soon as tonight, according to Arab Bank foreign exchange dealer Scott Young.

He said currency markets had taken the aggressive statement on exchange rate flexibility by the Group of Seven (G7) richest nations as a green light to sell US dollars.

The G7 called for currency flexibility that was interpreted as a clear message to Asian countries to change their currency regimes, which the United States fears are eating away at its exports.

"The market was looking for the US to push their position a little stronger," Mr Young said. "The market seemed to be on to something, seemed to smell a bit of blood in the water and (US Treasury Secretary) Snow went revved up to corner the Japanese, saying: 'come on markets should be doing this thing'.

"And the market has perceived the comments that have come out as giving them a bit of a green light."

Mr Young said the next 12 to 24 hours would be very important for the Australian currency to see whether it is going to settle up around the $US0.6800 level or whether today's move was a market over reaction.

At 1200 AEST the Reserve Bank of Australia Trade Weighted Index - which measures the Australian dollar against a basket of currencies - was at 59.4 points compared with 59.1 at Friday's close.

http://www.smh.com.au/articles/2003/09/22/1064082907428.html