a$ tipped to bounce to us75 cents

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    Forecasting FX rates is one of the hardest "guessing games" in town, due to the many variables, but still, some people like to have a go at it.

    Aussie tipped to bounce from lows to US75¢
    By Chris Young
    November 7, 2005

    THE dollar fell last week on speculation that the central bank plans to leave interest rates unchanged for the rest of the year.

    Reserve Bank governor Ian Macfarlane has kept the benchmark cash rate on hold since March, contributing to the dollar falling to its lowest level in a year on Friday.

    The US Federal Reserve last week raised rates for the 12th consecutive time.

    "With yields waning and other central banks sounding more hawkish by the day, we would continue to argue for a slow and steady decay for the Australian dollar," said Robert Rennie, Westpac's chief currency strategist.

    The dollar traded at US73.32¢ in New York on Friday from US74.92¢ a week earlier. On Friday it slid to a low of US73.12¢, its lowest since October 20, 2004.

    Westpac forecasts the currency will trade at US73¢ to US78¢ for the next three months.

    The yield advantage for investors holding Australian government bonds over those holding treasury bills has diminished as the Reserve Bank kept the overnight cash rate at 5.5 per cent and the Fed pushed its key lending rate up 0.25 percentage points to 4 per cent.

    The Reserve Bank is scheduled to release its quarterly monetary policy statement today.

    The yield gap, or spread, between two-year bonds of Australia and the US has shrunk to 93 basis points, or 0.93 percentage points, close to a four-year low. In January, the difference was 1.98 percentage points.

    "The two-year spread has now spent a week below the critical 100-basis-point level, which is undermining the Australian dollar," said John Kyriakopoulos, a currency strategist at National Australia Bank.

    The Australian dollar is expected to rise this week because some investors are expected to take the view that last week's 2.1 per cent fall was excessive, senior currency strategist at RBC Capital Markets, Greg Gibbs, said. "(It has) moved a long way quickly so I expect it to bounce from these levels to US75¢," he said.


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