The slide in the Aussie and New Zealand dollars slowed yesterday as the local stockmarket stood against the trend from New York and finished higher, and Asian markets bounced back in the afternoon.
The Aussie ended at 84.93 USc in Sydney yesterday, according to the Reserve Bank, down from the recent high of 88.71USc set last week. The trade weighted index was 68.3, down sharply from the peak last Wednesday of 70.9.
The Aussie rose overnight to finish around 85.40 USc in new York, while the Kiwi ended around 76.40 USc.
Wall Street bounced back, following our market but the rise in New York wasn't all that convincing. US bond rates rose with the yield on the 10-year security hitting 4.81%. Oil was down but copper and gold were higher.
The Australian dollar has fallen 4.3% against the greenback since peaking on July 25.
But the slide for the New Zealand dollar has been even more marked as it slipped 6.1% since touching its highest since the float in 1985 on July 24.
The slide for both currencies comes as the Japanese yen rose to its highest level against the euro for a month as investors unwound carry trade investments in Australia and New Zealand in the wake of the market volatility.
The Australian currency fell as low as 84.72 USc, the weakest since the end of June. The New Zealand dollar fell for a fourth day to 76.13 USc from 76.51.
The Kiwi was knocked from its perch last Thursday after the country's Reserve Bank lifted interest rates to 8.25% and then said it was probably the last move in the current tightening.
That upset investors looking for an easy return and a free ride and they sold heavily and switched across the Tasman, only to be caught up in the violent market corrections of Thursday and Friday in Europe and the US.
The Australian dollar fell by around 2% against the yen to 100.67 and the New Zealand dollar tumbled 2.6% to 90.18.
Despite the poor showing of the Japanese LDP in the Upper House elections on Sunday (The government lost control of the Upper House in a stunning rejection of Shinzo Abe's Government, especially in rural Japan), the yen rose because figures were released showing a strong recovery in Japanese industrial production in June.
That again got the bond bunnies believing the Bank of Japan will be encouraged to raise interest rates. If it does it will be an enormous act of political courage, but the BoJ may just sneak a rate through if the Abe government is floundering with no credibility or political clout.
If there's a steadying in Europe and the US over the next day or so, watch for the Aussie dollar to be driven higher on speculation that the Reserve Bank will raise interest rates next week for the first time in 2007.
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The Australian share market finished with gains yesterday, defying the 200-plus fall on Wall Street on Friday.
The ASX/200 index rose 25.9 points to 6108.8, while the All Ordinaries gained 19.2 cents to 6146.5.
Locally, the big miners were better with BHP Billiton adding 82 cents to $36.79 and Rio Tinto picking up $1.16 to $91.76.
The banks were not as strong with the Commonwealth adding three cents to $54.60, Westpac seven cents to $25.78 but the NAB shed five cents to $38.15 and ANZ two cents to $28.15.
The retailers were mixed, with Woolworths rising 76 cents to $27.00, Coles dropping nine cents to $14.20, David Jones losing two cents to $5.61 and Harvey Norman shedding one cent to $5.15.
Investors are wondering if Woolies will be in a position to snap up part of Coles if the Wesfarmers bid falls over.
But Coles' board knows it has no chance of renegotiating the merger terms with WES whose shares rose 6c to $38.58, still well under the baseline for its cash and shares offer. But WES is going to offer a cash alternative which will help steady the situation.
Macquarie Bank fell another $1.15 to $80, well down on that placement and issue at $97. There are some big losses in the millionaire's factory at the moment and it is back to where it was in March, as it approached the end of the financial year.
Qantas is back in the limelight with two brokers, UBS and JP Morgan, yesterday openly speculating that the airline could be broken up into four separate businesses.
An announcement is expected at the results announcement in just over a fortnight's time. Qantas shares eased 2c to $5.54 yesterday as the news of the broking reports circulated.
