Australian dollar falls to twelve-year low

Australian dollar falls to twelve-year low

SYDNEY (Agencies): The Australian dollar sank below 63 U.S. cents yesterday to its lowest levels since the "Banana Republic" days of 1986, as violence in Indonesia and fresh bad news from Japan deepened investors' disillusionment with Asia.

The dollar breached this year's former low in early European trading and dealers were said to be using the Aussie as a "proxy" to sell down other regional currencies.

By 5.20 p.m. (0720 GMT), the currency had slumped to 62.94 cents, below this year's former low at 63.08 cents. Dealers said new support levels were 62.75 and 62.50 cents.

"With the Asian economic problems and these latest riots in Indonesia, they're using the Australian dollar as a proxy to sell down some of the other Asian currencies, because these currencies don't have enough liquidity," Chase Manhattan corporate foreign exchange dealer Andrew McGill said.

"It's much easier and safer to trade Aussie, Kiwi and yen than try and trade rupiah or these other currencies and get stuck with a position," he added.

Although the Australian economy has so far proved fairly resistant to the Asian contagion, Australian export earnings are threatened and the government has cut growth forecasts.

Aussie dollar bears have been especially sensitive to problems in Japan, Australia's single largest export market. Dealers cited news on Tuesday that Japanese wholesale prices fell 2.3 percent in April.

The currency has not been at these levels since May 1986, when then Treasurer Paul Keating warned that Australia risked becoming a "banana republic".

Then, the dollar reached a record low of 57 U.S. cents in July 1986, before swaying back to 63 cents in September.

The Reserve Bank of Australia intervened to support the currency in January this year when it slumped to 63.16 cents, but most dealers did not expect further intervention unless 60 cents was threatened.

In Tokyo, the U.S. dollar strengthened against the yen in Tokyo yesterday, rising at one point to its highest level in more than a month. Tokyo stocks rose slightly.

The dollar was quoted at 134.12 yen at 5 p.m. (0800 GMT), up 0.99 yen from late Tuesday in Tokyo and above its late New York level of 134.07 yen.

The dollar reached 134.25 yen earlier in the day, its highest since April 7, when it reached 134.72 yen.

Violent riots in Indonesia led investors to dump Asian currencies in favor of the U.S. dollar, which is seen as a safe haven in times of unrest.

The dollar ranged from 133.75 yen to 134.25 yen during Tokyo trading.