Currency report

Press, 12 September 1983, Page 26

Currency report

The United States Ml money supply figures surprised the market yet again last week. It was expecting a moderate increase last Friday, says Westpac Banking Corporation in its weekly foreign exchange report. However, the actual figure showed a decline of SUSI4OO million which sparked a wave of dollar selling, pushing the United States currency sharply lower. The dollar selling was helped by American banks closing out positions before their long week-end, and a lower Fed. Funds rate.

However, later in the week the dollar was traded steady to firmer, underpinned by the following factors:

®MI money supply growth is expected to be between SUS6OOO and 8000 million during the next few weeks; © U.S. interest rates are expected to remain steady to firm because of heavy Treasury funding requirements during September; <3 International tension, heightened by the fighting in the Middle East and the South Korean airliner incident.

All indications point to firm United States interest rates and a steady to strong U.S. dollar during the next few weeks, the bank says. Sterling has traded within a very narrow trading range against the dollar, but during the past few days it has started to weaken against all major curren-

cies. Its decline was partly the result of news of a second quarter United Kingdom current account deficit of £313 million. Indications are that sterling will continue to ease gradually.

The deutschmark remains subject to the adverse movements of the U.S. dollar and traded between 2.6670 and 2.7000 last week. Talk of an increase in the West German Lombard rate, which would help strengthen the mark, has been discounted because of the adverse effect this would have on an already fragile West German economy- .

The Japanese yen traded steadily in the range 246.50 to 245.00 last week, with commercial business dictating the levels. It should continue to trade around current levels. The movements in the Australian dollar have been somewhat erratic of late with the Reserve Bank of Australia adjusting the trade-weighted index (TWI) both ways in an attempt to stem speculation against the Australian dollar. In any event, indications are that inflation and interest rates in Australia will remain high next year, which should make the Australian dollar attractive to overseas investors. Should this prove to be the case, the Reserve Bank of Australia could well commence a steady upward appreciation of the TWI next year in an attempt to stem capital inflows, the bank says.