Aussie dollar soars to 40-month high against US dollar

  • Business
  • Tuesday, 20 May 2003


THE Aussie dollar leapt to a 40-month high of 65.69 US cents against the US dollar, thanks to rising pressure on the greenback following US Treasury Secretary John Snow's comment that the long-standing strong dollar policy did not imply any view about the exchange rate. 

At meetings with the Group of Seven (G7) in Deauville, France, over the weekend, Snow pointed out that the recent US dollar weakness was “really fairly modest.” 

His remark was interpreted to mean that the American authorities were unlikely to shore up the weakening greenback in the foreign exchange (forex) market, although Snow had repeatedly stated the US government's preference for a “strong dollar policy.” 

Growing concerns over the US ballooning trade deficit and the patchy picture on the US economic recovery, meanwhile, continued pulling down the US dollar against other major currencies. 

According to Financial Times, the International Monetary Fund (IMF) had on Sunday warned of considerable uncertainties in its US outlook related to a decline in stock prices, excess capacity and security concerns.  

Currency strategists expect the Aussie dollar to march toward the 70 US cents level in the near term given the persistent selling on the US dollar. 

“I think we are going to see a lot of US dollar selling in the weeks and months to come. The 67.5 US cents is the target now and at some point in time you've probably got to say that the Aussie is going to trade at 70 US cents,” The Sydney Morning Herald quoted National Australia Bank's head of market strategy Greg McKenna as saying. 

A relatively high interest rate at 4.75%, compared with 2.5% in euro member countries and 1.25% in the US, and a more resilient economy have sustained the appeal of the Aussie to money managers in the forex market. 

The ringgit, being pegged to the US dollar, was another casualty, falling to RM2.4963 against the Aussie in Asia trade yesterday, meaning the Australian currency has gained 16.5% since the beginning of the year, when it was worth RM2.1433.  

For Malaysians, overseas holidays and studying abroad have become much more expensive as a result. Companies that have foreign currency denominated borrowings such as euro or yen will incur higher interest expenses and repayments.  

And those who import raw materials from Europe will also feel the pinch due to higher costs. 

The euro also strengthened to a four-year high of 1.1692 against the US dollar, compared with 1.1589 last Friday. 

Consequently, the local currency had also depreciated sharply against the euro due to the soft US dollar. The euro was quoted at RM4.4324 yesterday, compared with RM3.9359 on Jan 2, or a 13% rise since.  

The yen soared to fresh two-year high of 115.20 in late Asia trade yesterday amid the weakening US dollar.  

However, forex dealers see the Japanese government stepping in to cap the surge in the yen. 

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