The Australian dollar hovered uncomfortably close to recent lows on the yen and US dollar on Thursday as ructions in global financial markets led investors to stay clear of riskier assets and higher-yielding currencies. However, short-term bill futures fell sharply as banks were reluctant to lend to each other, pushing up interbank rates.
Tight credit markets and rising dollar funding rates only added to investor apathy towards risk. By late evening, the Aussie was at $0.7985, down from $0.8005 late here on Wednesday but up from a fresh 13-month low of $0.7800 struck in the offshore session.
The Aussie eased to 83.47 yen, from 84.74 yen late here on Wednesday, within sight of a 2-1/2 year low of 81.39 struck earlier this week. Regional stock markets received yet another drubbing, forcing investors to pare leveraged carry trades. "Price action will still be driven by developments in the US financial sector and possible bank mergers," said Sue Trinh, senior currency strategist at RBC Capital.
"The sharp move down in US equities, and evidence of extreme risk aversion is not typically positive for carry trades." Reflecting the deepening worries about the health of the US financial system, shares of both Morgan Stanley and Goldman Sachs tumbled on Wall Street on Wednesday.