Trade deficit blowout trims 1c off $Aust

Press, 19 April 1989, Page 37

Trade deficit blowout trims 1c off $Aust

NZPA-AAP Sydney The Australian dollar fell more than USlc and interest rates were higher after the news of a further blowout in Australia’s current account deficit. The sAustl.6 billion (SNZ2.I billion) deficit for March was well above market expectations of SAustl.O billion to $1.5 billion. The dollar fell more than USlc to U579.70/80c as panic selling followed the news. The Australian dollar had traded up to U581.25C before the data’s release, after opening at USBl.2O'/ 25c, just down from Monday’s finish at U 581.28/ 33c. On credit markets, interest rates rose immediately. The key 90-day bank bill yield rose to 17.40/50 per cent after closing on Monday at 17.27/30 per cent, while 180-day bills rose to 17.60/70 per cent from 17.50/55 per cent on Monday. Economists said they expect the news to have more of an impact on the dollar than interest rates. Bank of America Australia economist, John Rothfield, said he did not expect any change in monetary policy, which has been tightened recently in a bid to halt the worsening deficit. “The pain will be taken on the dollar rather than interest rates,” Mr Roth-

field said. “We’d expect the dollar to trade over a 78 to 80 United States cent range in the short term,” he said. Macquarie Bank economist, Janet Torney, said the deterioration in the level of exports was a disappointment and of concern for the trade outlook in the months ahead. The March merchandise trade deficit of $528 million, against a $256 million deficit in February, was well above the market’s expected sAust2oo million shortfall. She also said that high interest rates were showing some evidence of a slowing in import demand. On the longer-term bond market, 10-year January 1998 bonds rose to 13.85 per cent from

13.73 per cent and July 1999 bonds rose to 13.76 per cent from 13.64 per cent.

On the Sydney Futures Exchange, bank-bill futures prices fell sharply, with the June contract at 82.49 cents from Monday’s 82.73 cents close.

One leading economist predicted the latest deficit would undermine the wage-tax deal unveiled by Treasurer Paul Keating last week. With tax cuts to be introduced on July 1, and followed by 6.5 per cent increase in wages over the year, his policy hinges on the current account deficit and inflation falling. In his budget last August, Mr Keating predicted that Australia would have a current account deficit of sAust9.s billion (SNZI2.S billion) for the fiscal year ending June 30. But the latest figure made a $l2 billion (SNZI6.7 billion) cumulative deficit for the first nine months of the year.

Yesterday he said the cumulative deficit could widen to more than sAustls billion, (SNZI9.7 billion), or just over 4 per cent of gross domestic product, for the year.

The March merchandise trade balance recorded a $528 million (SNZ694 million) deficit, compared with a $143 million (SNZIBB million) deficit in March last year, as exports fell 2 per cent from February, and imports rose 6 per cent.