The Australian dollar hit two-week lows on Wednesday as worries about the health of the European banking system sent investors fleeing to the safety of US Treasuries and gold. The local dollar dropped over a cent to as deep as $0.6332 at one stage before stabilising around $0.6385.
Remarks by a top local central banker that Australia will survive the financial crisis better than most other countries lifted investors' moods a tad. And data showing retail sales rose 0.8 percent in the fourth quarter, the biggest increase in a year, kept alive hopes Australia's economy may have just escaped an outright contraction last quarter, providing some support for the Aussie.
"Global developments remain the most important driver for investors, particularly the concern over future negative event risk surrounding the financial sector," said Joshua Williamson, a senior strategist at TD Securities. TD looks for the Aussie to fall as far as 50 US cents, in part because the grim global outlook is weighing on commodities which make up over half of Australia's exports.
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