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Last Updated: Wednesday, 22 October, 2003, 05:48 GMT 06:48 UK
Aussie dollar surges on trade hopes
Australian dollar notes
The Australian dollar has hit six-year highs on speculation that it could be moving rapidly towards a free-trade pact with giant neighbour China.

"China is certainly in our top three or four trade partners now," National Australia Bank currency strategist Greg McKenna told BBC World Business Report.

The switch in attention came as the dollar's slide against Asian currencies - principally the yen and the Chinese yuan - was temporarily arrested, after a key Asian leaders' meeting failed to comment on the foreign exchange markets.

In recent weeks Asia has figured large in the currency markets, amid loud US complaints that China is keeping its currency far too weak and Japanese worries that the yen is rising too fast for its exporters to cope with.

The new surge has taken the Aussie dollar past 70 US cents before slipping back to just below that line, its highest level since late 1997.

Australia's currency climbed 25% through 2003 to date, as the economy has remained strong despite a punishing drought, the Sars virus and the effects of the war in Iraq.


High prices for commodities - Australia has a strong position in minerals in particular - have helped prop up the country's currency.

The key driver, though, was the belief that the arrival of Chinese President Hu Jintao in Sydney on Wednesday heralded an imminent trade deal.

China is now Australia's third biggest partner after the US and Japan, with trade almost tripling to A$21bn ($14.7bn; 8.8bn) since 1996.

The government in Canberra has made no secret that it wants a bilateral deal with China, particularly in the wake of the collapse of World Trade Organisation talks in September.

This week has seen such deals dominate the Apec (Asia Pacific Economic Co-operation) summit, with Japan and South Korea agreeing to negotiate over such a pact, and the US beginning talks with Thailand.

A schedule for the China-Australia talks may be announced on Friday, the trade ministry said.

In the meantime, the strength of the Aussie dollar is keeping inflation low, with prices rising just 0.6% in the third quarter of 2003.

But that might not stop the Reserve Bank from boosting interest rates, already well above European and US levels at 4.75%, in the face of a stubbornly persistent housing boom.

National Australia Bank strategist Greg McKenna
"China is certainly in our top three or four trade partners now."

China to study currency shift
20 Oct 03  |  Business
Apec summit heads for trade clash
17 Oct 03  |  Business
China defiant on currency rate
02 Sep 03  |  Business
US tackles Asia's currency issues
01 Sep 03  |  Business
Australians resume spending spree
30 May 03  |  Business
Aussie dollar hits three-year high
04 Mar 03  |  Business

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