U.S. dollar weakens

Press, 7 February 1986, Page 8

U.S. dollar weakens

NZPA New York The United States dollar closed lower in America on Wednesday, (early yesterday, N.Z. time), its strength sapped by an assertion from the Reagan Administration that the currency must fall further if the huge United States trade deficit is to be narrowed. The dollar closed at 2.3900/10 Deutschmarks, above the day’s low of 2.3850 but two pfennigs below Tuesday’s 2.4110/20 finish. Brief hopes of co-opera-tion on oil output between the Organisation of Petroleum Exporting Countries and non-OPEC producers triggered short-covering that boosted sterling to $U51.3900/10 from 1.3720/30 on Tuesday, while the Canadian dollar surged to 1.4190/00 per dollar from 1.4435/45, partly because of Bank of Canada support.

The Presidential Administration’s comment

on the need for further dollar depreciation, contained in Its fiscal year 1987 Budget statement, contrasted with recent remarks from Japan and West German officials suggesting that they would like to see the dollar stabilise at current levels for now. The market took the view that the prospect for lower American interest rates if inflation remains under control makes It likely that the Administration will get its way. Moreover, dealers said, the other members of the Group of Five Finance Ministers would probably not be adverse to a further fall in the dollar as long as it occurred gradually, 'giving their economies time to adjust to the stiffer competitive challenge on world markets. The dollar dropped to 190.75/85 yen from 191.75/85 on Tuesday and to 2.0205/25 Swiss francs from 2.0385/05.

Reports from diplomatic sources in Oslo that Britain, Norway, and OPEC would meet to discuss oil output triggered a flurry of sterling buying on Wednesday morning on speculation that co-opera-tion could put a floor under oil prices. The pound rose to 5U51.3945 before the report was denied by Britain’s Energy Ministry. Still, when the dollar started rising, sterling stood its ground better than other currencies and finished about I*4 pfennigs higher on the day at 3.323/327 marks, dealers said.

The speed of the Canadian dollar’s recovery sparked speculation that the Federal Reserve System was either buying the currency or had extended Canada SUSI billion under a swap agreement.

Dealers saw no evidence of Federal intervention, either for its own account or for the Bank of Canada’s, while a Federal spokesman in Washington said he could not comment either way on whether Canada had drawn on its swap line with the Federal Reserve System. Canada did, however, say it would boost its reserves by sCan2.4 billion this month. It floated a $1 billion Eurobond today and said it would immediately draw down sCanl billion from existing standby credit lines with commercial banks. The Australian dollar closed in Sydney on its highs at 5U50.6980/87, compared with Wednesday’s $U50.6915/20 close in quiet trading on covering activity by the banks.

The Australian dollar opened firmer at $U50.6949/56 and firmed in subdued morning trading on a minor rally. Dealers said covering activity by the banks dominated trading in the absence of significant corporate business. They said most of the demand was in anticipation of further buying from U.S. interests last evening. The ANZ tradeweighted index was set at 74.85, up from 74.61 on Wednesday.