A$ Dollar may hit 50 US cents

Dollar may hit 50 US cents; imports sink
February 18, 2009

The Australian dollar may sink to as low as 50 US cents even as import demand shrivels, led by a slump in machinery shipments.

Data out today showed merchandise imports sank by 14% in January, or $2.86 billion, from the previous month to $17.261 billion. That compared to a downwardly revised $20.121 billion in December, the Australian Bureau of Statistics
.
Imports of mineral fuels, lubricants and related materials fell to $2.057 billion in January from $2.289 billion a month earlier, while imports of machinery and transport equipment fell to $6.122 billion, from $7.448 billion.

Merchandise imports into Australia for January, in seasonally adjusted terms, were not available on Wednesday, and will be released on February 24, the ABS said.

Global trade has hit a wall as the world economy sinks into recession. China reported its imports fell more than 40% in its most recent monthly report, while other countries are also posting big declines.

The economic slump will particularly hit Australia's currency sending it as low as 50 US cents, as commodity prices fall and the Reserve Bank may lower borrowing costs to a record, TD Securities said.

Australia's dollar this morning fell to 63.34 cents, the weakest since February 3. The currency touched 47.75 cents in April 2001, the lowest since it began trading freely in 1983.

''The global economic collapse, the weakness of commodity prices, the prospect of Australian interest rates going to 2% or less and a severe domestic recession suggest the Australian dollar could weaken sharply,'' wrote Stephen Koukoulas, London-based head of global foreign exchange and fixed-income strategy at TD Securities, in a note to clients.

The Reserve Bank of Australia cut interest rates to a 45-year low of 3.25% on February 3 after the $1 trillion economy grew at the slowest pace in eight years in the last quarter of 2008. Traders are betting benchmark rates will fall to 2.26% over the next 12 months, according to a Credit Suisse Group AG index based on swaps trading.

''Right now, it could be argued that Australian dollar drivers present a bigger list of negatives and the depth of the problems are more severe'' than in 2001, Koukoulas wrote.

The currency may soon drop below October's five-year low of 60.1 US cents and after that a decline to 50 US cents or less is possible, he said.

The Australian dollar fell 35% since reaching a 25-year high of 98.49 US cents on July 16 as prices dropped for commodities that account for 60% of the country's exports. That's the biggest decline among the 16 most-traded currencies against the US dollar.

Australia's economy will expand 0.25% in the year to June, the central bank said February 6.

AAP, Bloomberg News