Dollar sinks towards parity as Euro tensions rise
The Australian dollar is threatening to fall through parity with the greenback after political turmoil in Greece came back to haunt global markets overnight and investors digested the federal budget.
Online shoppers and people planning trips to the United States will be keeping a close eye on the dollar today after it fell to $US1.006 this afternoon - its weakest point since December 22.
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The Aussie has slipped as tensions in Europe threatened to derail efforts to ease the ongoing sovereign debt crisis. Frontrunners in the Greek elections have struggled to form a government following elections on the weekend, and issued warnings that earlier bailout deals for the troubled nation may be scrapped. The dollar traded as high as $US1.042 on May 1.
Aussie dollar ... At the mercy of global forces. Photo: Louie Douvis
IG Markets analyst Stan Shamu said the dollar continued falling early today to reach its lowest point since December.
“Parity is certainly not far away at all with pressure still firmly to the downside. With a sharp rise in risk aversion, commodities and risk currencies were the hardest hit,” he said.
Here's what people are saying on Twitter:
Common sense coming into AUD pricing_ now 1.0070.Still needs to be a good 5% lower to move to fair value— Stephen Koukoulas (@TheKouk) May 9, 2012
Australian dollar to 90 cents? ow.ly/1jzpPH— Macro Business (@macro_business) May 9, 2012
Aussie dollarapproaching parity on the way down - a bit like labor ROOTED #auspol— lasty52 (@lasty52) May 9, 2012
Crucial jobs numbers
Overnight, the head of Greece's New Democracy party Antonis Samaras failed to form a coalition government, while the leader of the left-wing Syriza party, Alexis Tsipras, who is now trying to form a government, warned that the “the popular verdict clearly renders the bailout deal null".
The wobbles in the value of the Aussie come ahead of crucial jobs data to be released tomorrow, which will provide some guidance on whether the Reserve Bank will cut rates again in June.
A Bloomberg survey of 22 economists predicts the economy will have shed 5000 jobs in April, raising the unemployment rate to 5.3 per cent from 5.2 per cent.
A weak jobs number tomorrow will build the case for another rate cut, which in turn could see the Aussie dollar slide further.
“There's clearly a lot of factors conspiring against the currency at the moment,” said RBC Capital Market senior economist Su-Lin Ong.
“Despite the forecasts in the budget last night, it's still pretty patchy here in the non-mining sectors,” said Ms Ong. She noted that the release of the budget initially left the dollar little changed at about around $US1.013 last night.
Treasury predicts the economy will post 3 per cent growth in the year to June 30 before quickening to 3.25 per cent in 2012-13 and then easing back to 3 per cent expansion in 2013-14.
Unemployment, a key barometer of the health of household finances, will end the current fiscal year at 5.25 per cent before rising to 5.5 per cent by June 2013 and remaining at that level a year later, the government predicts.
Currently, the RBA's May cut is expected to be followed by more reductions, bringing Australian interest rates closer to the low rates held in the US and elsewhere.
More cuts ahead
The market is tipping a 91 per cent chance of a rate cut when the RBA meets again in June and expects the cash rate to fall as low as 2.75 per cent by the end of the year, implying more rate cuts in the second half of 2012.
Australia's high interest rates relative to the rest of the world have supported the Aussie's value over recent years.
AMP Capital chief economist Shane Oliver said the restrained budget may lower the value of the dollar in today's session.
"On balance the implied policy switch towards tighter fiscal policy and easier monetary policy is a negative for the dollar but probably a positive for Australian shares," said Mr Oliver.
The dollar's slide is not contained to the greenback. It's even dropped against the euro - a currency that is being sold down across the world because of renewed worries about the state of Europe's finances and renewed political uncertainty.
The dollar fell to as low as 77.57 euro cent this mornng, its weakest point in five weeks.
The Aussie also lost ground against the yen, sinking to as low as 80.4 yen, the lowest point since January 23.
The drop against the pound was even more pronounced, however. It fell as low as 62.38 pence this morning, a level it's not touched since November 24.