aussie dollar crashing, page-2

RBA has stepped in, the first time in 6 years

Australian Central Bank Intervenes Amid Currency Rout (Update1)

By Chris Young


Aug. 17 (Bloomberg) -- Australia's central bank intervened in the foreign-exchange market for the first time in six years after the currency had its steepest weekly slump since it was allowed to trade freely in 1983.

Financial markets have become ``extremely skittish,'' central bank Governor Glenn Stevens told a parliamentary committee on Queensland's Gold Coast today. A bank spokesman said earlier the bank had ``dealt in thin and disorderly foreign-exchange markets last night to restore some liquidity.''

Australia's dollar has tumbled 10 percent this week as investors cut holdings in higher-yielding assets bought with borrowed money from Japan. Central banks injected $290 billion into money markets last week on concern access to credit would dry up amid U.S. subprime mortgage losses. The Bank of Japan added 1.2 trillion yen ($10.5 billion) today.

``It's essential that financial markets continue to function,'' said Robert Rennie, chief currency strategist at Westpac Banking Corp in Sydney. ``It's important that central banks try to restore calm and stop markets from breaking down.''

The yen has strengthened at least 4 percent against all 16 most-active currencies this week as a global rout in equities and emerging-market assets spurred investors to exit so-called carry trades. New Zealand's dollar declined the most, set for the largest weekly loss since December 1985.

`Absolute Meltdown'

``It's been an absolute meltdown,'' said Paul Milton, chief dealer at Societe Generale SA in Sydney. ``I've not seen that sort of move since the Asian crisis. Below 81.50 cents, the Australian dollar didn't have any liquidity.''

The Australian dollar traded at 79.15 U.S. cents as of 10:56 a.m. in Sydney compared with 78.68 late in Asia yesterday. The currency has slumped 6.2 percent this week from 84.43 cents late in New York Aug. 10. Against the yen, it was at 90.14 from 99.96 at the start of the week.

``Sometimes, the ensuing retreat can go too far, resulting in a widespread withdrawal from the provision of credit that unnecessarily crimps the pace of economic expansion,'' Governor Stevens said today. ``We will, therefore, have to continue to watch carefully how this unfolds.''

Asian stocks fell today, extending a slump in global equities on concern the global credit crunch will stunt economic growth and erode corporate earnings. The Morgan Stanley Capital International Asia-Pacific Index declined 0.5 percent at 10:22 a.m. in Tokyo, for a four-day slump of 5.2 percent.

Margin Requirements

ME Group Inc., the world's largest futures exchange, yesterday increased margin requirements on some currency, interest-rate and stock-index contracts to reduce the risk that leverage will fuel losses amid financial-market instability.

The Bank of Japan, which added 1.2 trillion yen to the money market today, has conducted daily injections greater than 1 trillion yen a total of 10 times this year. It injected 1 trillion yen on Aug. 10 after the U.S Federal Reserve and the European Central Bank added more than $100 billion of funds.

Japan's top currency official, Naoyuki Shinohara, said he's closely watching foreign-exchange movements after the yen strengthened, Dow Jones reported.

``So far this isn't the disorderly unwinding of the carry trade the Bank of Japan's been worried about,'' said Hiromichi Shirakawa, chief economist at Credit Suisse Group in Tokyo. ``The Ministry of Finance will take a wait-and-see stance unless the yen goes below 110'' against the dollar.

Yen's Gains

The yen climbed to 113.14 against the dollar from 113.89 late in New York yesterday, when it earlier touched 112.01, the strongest since June 2006.

Australia's central bank added A$3.87 billion ($3.05 billion) to the financial system. It has injected more than A$3 billion only three times this year, all since Aug. 10.

Singapore's domestic money and foreign-exchange markets are functioning normally and there isn't a need for ``extraordinary operations'' from the central bank, the Monetary Authority of Singapore said today.

The central bank will ``stand ready to act if the situation warrants,'' it said in an e-mailed statement.

South Korea's won is ``returning to normal'' the central bank's top currency official said.

``The won, which has been highly overvalued, is in the process of returning to normal,'' Ahn Byung Chan, director general of the Bank of Korea's international bureau, said in an interview in Seoul today. ``The market is operating smoothly.''

The won fell 1.6 percent this week to 947 per dollar as of 9:29 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd.

Taiwan's central bank said it will supply sufficient liquidity and the island's dollar remains ``relatively stable.''

To contact the reporter on this story: Chris Young in Sydney