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Aust dollar closes weaker after Wall Street's big decline

21 Nov 2008 5:48 PM

SYDNEY, Nov 21 AAP - The Australian dollar closed weaker on Friday aftera sharp decline on Wall Street battered risk appetite and pushed the currency to its lowest level in three and a half weeks.

But the unit pared back those early losses and staged a solid rebound on Friday afternoon as Asian stock markets reversed direction.

At 1700 AEDT, the Australian dollar was trading at 62.14 US cents, down 1.4US cents, or 2.2 per cent, from Thursday's close of 63.52.

During the day, the local unit moved between a low of 60.78 US cents - its lowest level since October 28 and a high of 62.40 US cents.

In a pattern similar to recent trading sessions, the Australian dollar moved in line with yet another big fall on Wall Street, reaching its intraday low as the New York session closed at 0800 AEDT.

Bad US economic news, headed by a jump in the number of people claiming unemployment benefits, drove sentiment and pushed the S&P500 index to its lowest finish since April 1997.

The local currency stabilised during the morning after confirmation the Reserve Bank of Australia (RBA) had intervened in the foreign exchange market.

An RBA spokesman said the central bank had "provided liquidity as on previous occasions".

Bank of America head of economics and strategy Tomoko Fujii said the turnaround on equity markets helped ease market tensions.

But he felt there was not a great deal behind the Australian dollar's rally.

"Other than some Asian equity market recovery, I don't see any convincing reason for this solid rebound," Ms Fujii said from Tokyo.

Ms Fujii said the Bank of Japan's (BOJ) decision to leave official Japaneseinterest rates steady was widely expected but the market did welcome stepsto improve liquidity in the corporate finance sector.

"Given the market instability, nothing at all would have been quite disappointing," Ms Fujii said.

"At the minimum, this was helpful for market sentiment."

The benchmark S&PASX200 finished up 1.90 per cent, while the broader All Ordinaries index gained 1.63 per cent.

At the close of trade, the Australian dollar was at 58.87 Japanese yen, down from Thursday's close of 60.50 yen, and at 49.65 euro cents, down from Thursday's close of 50.81 euro cents.

The euro finished at 1.2515 US dollars, up from Thursday's close of 1.2507 US dollars and at 118.57 Japanese yen, down from 119.12 yen.

The US dollar closed the local session at 94.75 Japanese yen, down from 95.24 yen.

The local bond market closed stronger after Wall Street's big decline and despite a late afternoon selloff as local equity markets rebounded.

At 1630 AEDT, the yield on the Commonwealth Government March 2019 bond was at 4.625 per cent, down from Thursday's close of 4.760 per cent, while the yield on the June 2011 bond was at 3.515 per cent, down from 3.660 per cent.

On the Sydney Futures Exchange, the December 10-year bond futures contract price was at 95.370, up from Thursday's close of 95.235, while the Decemberthree-year contract price was at 96.470, up from 96.320.

The local bond market opened stronger but sold off in the afternoon as market sentiment improved and investors rushed back to stocks.

"I don't see this as anything other than a temporary retracement of an otherwise solid rally," ICAP senior economist Adam Carr said.

"It's certainly set to reverse next week."

The 90-day bank bill rate closed at 4.400 per cent, down from Thursday's close of 4.540 per cent, while the 180-day bank bill rate was at 3.887 per cent, down from 4.150 per cent.

At 1600 AEDT, the RBA's trade weighted index (TWI) was at 52.1, down from Thursday's close of 53.3.

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