Currencies
The dollar languished mid-week thanks to a combination of falling U.S. equities and comments from U.S. Treasury Secretary Snow once again concerning the dollar. The OECD added to the rhetoric saying that the decline in the dollar, while helping to cap the rise in the U.S. external deficit, could weaken the global economy by dampening U.S. domestic demand and imports. This is because of the world economy's reliance on the U.S. for growth. So far the euro has borne the brunt of the dollar adjustment. Any shift by foreign private investors away from U.S. equities has been largely offset by official purchases of U.S. assets, especially by Asian governments who are aiming to support the dollar to keep their competitive edge. Most analysts believe the U.S. would like the dollar to weaken against a range of Asian currencies. By either pegging or manipulating their currencies, many Asian nations have kept their exchange rates artificially weak. Strategists who are bearish on the dollar's outlook noted that the currency needed positive data and strong share price performance just to hold ground.

The U.S. dollar slipped to a new six-year low against the Australian dollar and a new 10-year low against the Canadian dollar. On Thursday, the euro climbed within sight of its June lifetime highs. The Canadian dollar, often linked with the other commodity-rich economies, rose sharply to $0.7680 despite a slightly more dovish tone from the Bank of Canada.

The Australian dollar rose for a seventh week in eight as speculation increased that the central bank would increase interest rates in coming months. The Reserve Bank of Australia meets on November 4th and it could begin a new round of interest rate hikes. Rates that are already high - 4.75 percent - have helped the Australian dollar jump against its U.S. counterpart this year. With a strong domestic economy, the currency could keep rising.

The Australian dollar gained 1.4 percent this week to $0.7012 at the close of New York trading on Friday. It rose as high as $0.7074 on Thursday - the highest since November 5, 1997. Prime Minister John Howard and Chinese President Hu Jintao signed an agreement Friday to consider a free-trade accord, giving Australian companies greater access to the world's fastest-growing economy. Hu, on his first trip to Australia since becoming president in March, addressed Parliament in Canberra yesterday, just a day after U.S. president Bush. Australia's trade with China was A$22.3 billion ($15.6 billion) in the year ending March. Trade with China has trebled in the past six years though the U.S. and Japan remain Australia's largest trading partners.

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