The Australian Dollar has plunged by almost 2 U.S. cents as panicky investors rushed to sell the currency as the global financial market experience jitters. The Australian Dollar also plunged as much as 4.4 percent against the Japanese Yen as investors dump their riskier bets on borrowing low wield currencies to invest in higher wilding currencies, also known as currency carry trading. The catalyst for this continuing bout of instability in the financial markets is the news that a large French bank had frozen three funds amidst the subprime crisis.
''I suspect we are somewhere near the bottom, but it is just too difficult to be sure,'' said Richard Grace, chief currency strategist at Commonwealth Bank of Australia. ''Historically, when there has been an unwinding of carry trades, this is about as far as it tends to fall in percentage terms. There are probably more skeletons to come out of the closet, so from that perspective we could be in for further selling.'' The European Central Bank, the U.S. Federal Reserve and the Reserve Bank of Australia have injected large sums of funds into the money market in the attempt to boost falling liquidity.
In the foreign exchange, the Australian Dollar plunged almost 2 U.S. cents, closing yesterday at 84.25 U.S. cents, way below Thursday's closing trade of 86.22 U.S. cents. The Australian Dollar had fallen to 84.01 in that trading session. It is now down about US5.5c since its recent high of US88.74c on July 25. The Australian Dollar fell to 99.34 Japanese Yen from Thursday's close of 102.92 Yen, and was at 61.59 Euro cents from 62.53 Euro cents.
Other measures which have helped view the scope of this plunge is the Trade Weighted Index (TWI). The TWI measures the Australian Dollar's performance against a basket of currencies. Yesterday, it had fallen a sharp 1.7 points to 67.8 points.
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