Aust. dollar highs expected

Press, 31 January 1984, Page 22

Aust. dollar highs expected

NZPA Sydney The Australian dollar is set to reach post-float highs in the coming months as the full implications of a floating exchange are felt through the seasonal tax rundown period, according to foreign exchange dealers and economists in Sydney.

The dollar is expected to reach 94 United States cents as Australian companies borrow offshore to avoid higher domestic interest rates to meet over-all tax payments. This compares with the close last Friday of 91.35 US cents and a previous high of 92.60 set in early trading on the first days as a floating currency in December. The value of the dollar is now based on the supply and demand factors in the market based on the needs of either exporting, importing or speculative interests.

Previously, companies would borrow offshore if interest rates rose locally, thereby adding funds to the money supply and easing the pressure on rates but without having a significant impact on the exchange rate. Under a floating exchange

rate, the increased demand for Australian dollars puts upward pressure on the unit’s value, creating a more volatile exchange rate, but with the likely compensation of less volatile local interest rates.

Dealers say the strength of the dollar is also underpinned by an improving economic outlook, providing further grounds for capital inflow. The major question hanging over the market is how much of the funds that were entered in anticipation of an upvaluation of the currency in eary December are still in the banking system.

The softer trend of the currency in the last weeks of December did point to a certain amount of the estimated $l5OO million inflow being repatriated as the speculators took their losses.

Through that period, the dollar was averaging 88.50 US cents from the 90.25 US cents on the last day as a controlled rate.

However, a significant proportion of the funds brought in were on a short term basis and have been re-invested locally rather than offshore, dealers say.