THE Australian dollar has opened firmer after the federal government’s guarantee to cover all bank deposits for three years lifted investor confidence about the country’s banks.

At 0700 AEDT, the Australian dollar was trading at $US0.6674/82, up from Friday’s close of $US0.6591/99.

During the weekend offshore session, the local currency traded between a high of $US0.6750 and $US0.6331, its lowest level since May 5, 2003.

Bank of New Zealand currency strategist Danica Hampton said the federal government’s plan to ensure all bank deposits had boosted sentiment towards the Australian dollar.

Yesterday, the federal government said it would guarantee all term wholesale funding by Australian banks working in overseas credit markets and all deposits in any local financial institution was safe for the next three years.

Also the Australian Office of Financial Management (AOFM) will buy an extra $4 billion in residential mortgage back securities to boost liquidity in the local home lending market.

The domestic unit began this morning’s trading at $US0.6432.

“The Aussie dollar started the week on the front foot after the Rudd announcement yesterday,” Ms Hampton said from Wellington.

“That has been seen as a sign of confidence.”

Ms Hampton said the basic plan announced by leaders of the eurozone to deal with the lack of liquidity in credit markets would help restore confidence in financial markets.

French President Nicholas Sarkozy said after the meeting of the 15 members of the eurozone that they would use public funds to guarantee banks would not fail and resume lending to each other.

“We need concrete measures, we need unity, which is what we achieved today,” President Sarkozy said.

“None of our countries acting alone could end this crisis.”

There was little detail about the eurozone plan, but it appeared they were organising capital injections into their banks, Ms Hampton said.

Prime Minister Kevin Rudd’s announcement about easing banks’ funding costs as well as the signs of hope from the eurozone and the US should lift the Australian dollar this morning, she said.

“There is a little ray of sunshine on the horizon,” she said.

Today’s local data includes the ANZ jobs figures for September and lending finance for August from the Australian Bureau of Statistics.

Ms Hampton said the local currency had found a “near-term floor” for now.

The Australian dollar could find resistance around $US0.6750 during local trading.

The Australian Business
by Staff and Writers
13th October 2008

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