Australia Dollar Fall on Global Growth Concerns

The Australian dollar headed for a weekly loss as concern that global growth will slow prompted traders to reduce holdings of higher-yielding assets bought with money borrowed in Japan., Bloomberg 1/18/2008 7:44:55 AM

Australia's dollar reached a four-month low versus the yen in the past five trading days as global stock losses spurred investors to cut so-called carry trades. Australia's currency was set for the biggest weekly drop since November versus the U.S. dollar as traders reduced bets the Reserve Bank of Australia will raise interest rates this year.

The Australian dollar fell to 87.26 U.S. cents at 1:50 p.m. in Sydney, from 88.29 cents late in Asia yesterday. Against the yen, the currency dropped to 92.90 from 94.81 yesterday and 96.95 yen late last week.

Australia's dollar may fall to 86 cents and New Zealand's to 75 cents over the next few weeks, Trinh said.

In carry trades, investors borrow funds in countries with lower lending rates, such as Japan's 0.5 percent benchmark, using the cash to invest in nations that offer higher returns. The currencies have been targets for the strategy because of Australia's 11-year high rate of 6.75 percent and New Zealand's record 8.25 percent benchmark.

Carry trades are considered risky because currency fluctuations can erase the profit earned on the difference in interest rates. Australia's dollar has fallen 13 percent and New Zealand's by 16 percent against the yen in the past six months as the worst U.S. housing slump in 16 years deepened, reducing the amount of credit available worldwide.

Australia Dollar Fall on Global Growth Concerns