$A continues to drop on Belgian bank fears
The Australian dollar has continued its downward trend following a report that France and Belgium were restarting speaks on the bailout of Brussels-based bank Dexia.
At 1700 AEDT, the Australian dollar was trading at 97.60 US cents, down from 98.57 US cents yesterday.
Last month, Dexia became the first European bank to receive a government bailout in response to the eurozone debt crisis.
In the original deal, France, Belgium and Luxembourg supported the bank to the tune of 90 billion euros in say guarantees, with the Belgian government to take over operations for four billion euros.
Commonwealth Bank currency strategist Joseph Capurso stated the news had fuelled wider concerns about sovereign debt in Europe.
“There was speculation that the Belgian government may have trouble meeting its obligations to bail out Dexia, and that would put pressure on the French government,” he said.
“The French government’s bond market has been under pressure these last few months, so this has re-ignited fears about sovereign debt and the banking system, globally.
“The PMI (purchasing managers’ index) that came out of China this day was not that good, so that did not help matters at all.”
The data from Beijing – which suggested a contraction in China’s factory sector – has built on fears that the country may be heading for a hard landing.
Looking ahead, Mr Capurso stated he expected that the local currency would continue to drop.
“When London opens I suspect we will get a drop in both the Euro and the Aussie,” he said.
“I think it will hit 97 cents in the next couple of hours, and if the bond market has a bad reaction, then 96 or 95 is within sight this evening.”
From 0600 AEDT on Wednesday, the local currency has traded between 97.57 US cents and 98.57 US cents.
The Reserve Bank of Australia’s trade weighted index was at 72.6 on Wednesday, down from 73.2 on Tuesday.
source : www.wabusinessnews.com.au
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