MARKET WELCOMES LOWER AUSTRALIAN PAYMENTS DEFICIT
The Australian dollar rose more than 40
points and money market interest rates retreated on the better
than expected improvement in the February current account
deficit, but economists and dealers were cautious about
identifying it as the start of a downward trend.
    The current account deficit narrowed to 750 mln dlrs in
February from 1.23 billion in January. It hit 13.82 billion
dlrs in 1985/86 to end-June.
    The currency jumped to 0.6858/63 U.S. Dlrs and traded as
high as 0.6875 before retreating to around 0.6864/69.
    "It's got 69 cents written all over it," one dealer said.
    Foreign exchange dealers said some buyers had gone long on
the dollar expecting a lower figure and sold it down about 30
points to 0.6820 U.S. Dlrs before the release.
    The 750 mln dlr deficit was at the lower end of forecasts
and analysts said the market would welcome any figure below one
billion dlrs for March.
    Banque National de Paris <BNPP.A> senior dealer Peter
Nicolls cautioned that in the long term the currency and
interest rates were too high for import substitution and export
industries.
    Nicolls said he expected the dollar to go as high as 0.6875
and perhaps to 69 cents tomorrow.
    <Lloyds Bank NZA Ltd> chief economist Will Buttrose said
the 42 mln dlr trade surplus was encouraging as were imports at
2.77 billion dlrs, down from 2.99 billion in January.
    But he warned that the outlook for rural and iron and coal
exports remained poor. "We should remember we are paying
something like seven to eight billion dollars simply to service
our foreign debt and that is not going to go away in the near
term," Buttrose said.
    Buttrose said he expected a March deficit of around 900 mln
dlrs, and added "Any figure under a billion dollars will be
acceptable (to the markets)."
    ANZ Banking Group Ltd <ANZA.S> senior economist Ian Little
said the big question was whether the improvement in exports
could be sustained. February FOB exports rose to 2.82 billion
dlrs from a revised 2.74 billion in January.
    Interest rates responded quickly to the deficit news, with
90-day bank bill yields falling to 16.42-16.45 pct from early
highs of 16.50 and yields yesterday as high as 16.65.
    Longer term yields fell with 10-year bonds at 13.66/68 pct
from 13.74 before the release and highs of 13.87 yesterday.
    The stock market was easier at midsession but brokers said
the current account data had little impact on trading.
 REUTER
