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Concern over Spanish bonds pushes $A lower

Reported by AAP
Wednesday, April 11, 2012
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The Australian dollar fell to a 14-week low against its US counterpart, prompting expectations it could test parity in coming weeks.

However, the local currency regained its lost ground to finish the local trading day steady from its previous close.

The intraday drop came amid renewed concerns about Spain's ability to repay its mountain of sovereign debt and its wider effect on rekindling the European financial crisis.

At 1700 AEST on Wednesday, the Australian dollar was trading at 103.02 US cents, down fractionally from 103.03 cents on Tuesday.

The local currency was at 83.22 Japanese yen, down from 83.77 Japanese yen on Tuesday and at 78.46 euro cents, down from 78.68 euro cents.

The local currency fell as low as 102.26 US cents on Wednesday morning, its lowest intraday level against the US dollar since early January.

Easy Forex currency trader Tony Darvall said the Australian dollar slumped overnight as Spanish bond yields rose, adding to fears of a fresh sovereign debt crisis in Europe.

Mr Darvall said the local currency recovered most of its lost ground during the afternoon session.

"We did hit a low early in the session but since then we've had a bit of a recovery."

"But the overall trend is still down."

Spanish 10-year bond yields rose to 5.81 per cent, from 5.74 per cent, on Tuesday night (Australian time) adding to fears the country would struggle to meet its debt commitments.

Mr Darvall said developments in Europe were likely to be the primary driver for the Australian dollar over the next few days.

"The story that everyone is watching at the moment is Spanish bond yields.

"If they continue to widen, we are going to have the same sort of ongoing debt crisis we had in early 2011."

He said the negative sentiment could push the local currency below parity with the US dollar for the first time since December 2011.

"The Aussie is weak and it is so close to the parity level at the moment that it is likely we will test it."

Meanwhile, the Australian bond market finished the domestic session almost level with Tuesday's close after a rally lost steam on profit-taking.

Westpac senior market strategist Damien McColough said the bond market started the day on a strong footing but prices then drifted lower for most of the day.

"There's been some slow selling throughout the day," Mr McColough said.

"I think that's because the Australian bond market has been relatively expensive, relative to its own fundamentals.

"I think you're seeing some profit-taking after the most recent rally."

At 1630 AEST on Wednesday, the June 10-year bond futures contract was trading at 96.170 (implying a yield of 3.830 per cent), steady from Tuesday's local close.

The June three-year bond futures contract was at 96.770 (3.230 per cent), up slightly from 96.760 (3.240 per cent).

The RBA's trade weighted index was at 76.3, down from 76.5.

28/11/2014 17:49Sydney, Australia. 28 November,2014
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