Inflation figures put Aust. dollar in dive

Press, 25 July 1986, Page 11

Inflation figures put Aust. dollar in dive

By FRANCIS DANIEL of Reuters, through NZPA Sydney

Latest inflation figures brought more economic gloom to Australia yesterday sending its dollar to record lows and causing the Treasurer, Paul Keating, to call for continued belt-tightening. The Australian dollar, which has fallen about 15 per cent against all major currencies since May, sank to a record low of 60.8 U.S. cents yesterday before making a marginal recovery.

The currency’s drop was triggered by the re-

lease of the Consumer Price Index for the second quarter, which showed a rise in inflation of 1.7 per cent, making 8.4 per cent for the 12 months ending June 30.

The inflation rate for the previous year was 4.3 per cent. The latest quarterly inflation rate was the lowest since the first quarter of 1985, but it fell short of expectations in a nervous market.

The Australian dollar has taken a heavy battering since Mr Keating warned two months ago that the country faced the danger of becoming a banana republic under a mounting balance-of-pay-ments deficit, external debt and labour costs.

Yesterday, he said in a statement: ‘‘Over all, the picture is one of inflation declining from its peak, but the figures also underline the absolute requirement for continued restraint by all sectors of the community.” Mr Keating pledged to keep wage increases “very moderate” this year in a bid to improve Australia’s international competitiveness. Mr Keating promised firm restraint in public spending and an austere budget next month. Mr Brent Davis, chief economist of the Australian Chamber of Commerce, said: “Business will have great difficulty in becoming internationally competitive while our inflation rate remains triple that of our trading partners.”

N.Z. dollar On the Wellington foreignexchange market yesterday, a sudden fall in the Australian dollar boosted the New Zealand dollar to 87.50 Australian cents in active trading. The kiwi dollar’s rise of two Australian cents against its Tasman counterpart was not a measure of its inherent strength, but a reflection on the Australian dollar’s acute weakness, dealers said. The New Zealand dollar’s high cross rate against the Australian prompted selling pressure because, one dealer said, such a high rate could not easily be sustained. The cross rate fell to 87.15 Australian cents and in late trading and against the U.S. dollar the unit was 60 points down from its opening to 5U50.5315/30. At these levels the kiwi against the Australian was not far off its record of 89.17 Australian,- set last November.

Minor falls against other currencies counterbalanced the kiwi unit’s rise against the Australian. The Reserve Bank’s trade-weighted Index was at 65.9, its opening level of Wednesday. In the United States on Tuesday (early yesterday, N.Z. time), the .American dollar rose against most foreign currencies in active trading, buoyed by better-than-expected U.S. economic statistics.

The Commerce Department confounded market forecasts of a decline in orders of durable goods by reporting a rise of 2.1 per cent in June orders. A pickup in economic growth could bring higher interest rates, which make dollar-denomi-nated investments more attractive.

Also supporting the dollar was a report from the Labor Department that consumer prices surged by 0.5 per cent

in June. Higher inflation also might bring higher interest rates. Reaction in the foreign exchange markets was mixed to remarks by the chairman of the Federal Reserve Board, Mr Paul Volcker.

In his mid-year report to Congress, Mr Volcker Issued a strong plea for Japan and Western Europe to do more to keep the world economic recovery alive and relieve pressure on a U.S. economy he said faced growing imbalances and strains.

- Mr Garrett Glass, a vicepresident of the First National Bank of Chicago, said: “It was a quintessential Volcker performance because it gives enough for everybody. You can be bullish or bearish no matter what he says.”

In New York, the dollar ended the trading day at 156.75 yen, up from Tuesday's 155.35 yen. The British pound sterling was unchanged from Tuesday at $U51.4925 in New York. Other New York dollar rates at 4 p.m. (8 a.m. yesterday, N.Z. time) compared with late rates on Tuesday: 2.1315 Deutschmarks (up from 2.1225); 1.7200 Swiss francs (up from 1.7115); $Can1.3896 (up from 1.38345); and 6.8725 French francs (up from 6.8560).