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Aust dollar backfires on stalled car rescue

By Stephen Johnson and Jordan Chong
12 Dec 2008 5:45 PM

SYDNEY, Dec 12 AAP - The Australian dollar closed weaker as a stalled US Senate car sector rescue plan caused risk appetite to backfire in late trade.

At 1700 AEDT, the Australian dollar was trading at 65.72 US cents, down from Thursday's close of 65.93 cents.

In the mid-afternoon, the Australian dollar came close to retesting its early morning high of 67.39, but it fell to a daily low of 65.43 US cents one hour later as the US Senate failed to reach agreement on a $US14 billion ($A20.84 billion) auto sector rescue package.

The late-night session stalled as Republicans demanded steep pay and benefit cuts, which the United Automobile Workers union objected to.

The legislation would have given General Motors and Chrysler bridge loans to operate until March 31, on the condition the firms restructured and repaid the government aid.

OzForex manager of corporate business Jim Vrondas said the Australian and New Zealand dollars were hit hard as the failure of US lawmakers to agree on a car industry rescue dented risk appetite.

"That put a big dent in confidence in equity markets," he said.

"There has been news General Motors could be looking into bankruptcy claims: that's not new but in light of what's happened this afternoon, there would be heightened tension."

The Australian dollar fell sharply against the Japanese yen, sinking by more than four per cent to less than 59 yen in the afternoon, from an opening high of 61.57 yen.

Against the US dollar, the domestic currency has lost a third of its value since reaching a 25-year high of 98.49 US cents in mid-July.

Earlier, during offshore trade, the Australian dollar had hit a five-week high of 68 US cents as the highest US weekly jobless claims number since November 1982 weakened the US dollar.

At 1700 AEDT, the local currency was trading at 58.97 Japanese yen, down sharply from Thursday's close 60.85, and at 49.41 euro cents, down from 50.19 euro cents.

The euro finished at 1.3401 US dollars, up from Thursday's close of 1.3130 US dollars and at 119.34 Japanese yen, down from 121.16 yen.

The US dollar closed the local session at 89.73 Japanese yen, down from 92.29 yen.

The Australian bond market closed mixed after a disappointing day on local equity markets supported the short-end of the yield curve.

At 1630 AEDT, the yield on the Commonwealth Government March 2019 bond was at 4.307 per cent, up from Thursday's close of 4.275 per cent, while the yield on the June 2011 bond was at 3.195 per cent, down from 3.345 per cent.

On the Sydney Futures Exchange, the December 10-year bond futures contract price was at 95.740, down marginally from Thursday's close of 95.745, while the December three-year contract price was at 96.755, up from 96.620.

The local bond market opened stronger at both ends of the yield curve after US jobless claims data, but the short end kept rallying as Asian share markets fell.

The 90-day bank bill rate closed at 4.390 per cent, down from Thursday's close of 4.428 per cent, while the 180-day bank bill rate was at 3.932 per cent, down from 4.020 per cent.

At 1600 AEDT, the Reserve Bank of Australia's trade weighted index was at 53.7, down from Thursday's close of 54.0.