The Australian dollar slumped to six-year lows against the yen on Friday as investors desperate to raise cash dumped leveraged positions in stocks, commodities and higher-yielding currencies.

Havoc across Asian markets and fears of an ever-deeper global recession boosted bill futures as investors bet the Reserve Bank of Australia (RBA) would again have to cut interest rates aggressively when it meets in early November.

Dealers reported massive selling of the local dollar from Japanese and European banks while buyers were few and far between, leading to a big lurch lower in wild trading.

“The Aussie is everyone’s whipping boy,” said Joseph Capurso, a currency strategist at Commonwealth Bank. “People are de-leveraging and de-risking, and in Asia that means selling Aussie.”

In part, that was because the Aussie was one of the few really liquid and free-floating currencies in the region.

“It’s used like a proxy for much of Asia,” said Capurso. “As people are increasingly bearish on Asia, and emerging markets in general, they dump the Aussie first.”

Emerging markets have become increasingly shaky this week as Hungary hiked rates, Brazil intervened heavily to support its currency, and the IMF considered funding packages for several countries.

Much of the damage was against the yen as Japanese investors sold off long-standing positions in the Aussie to cover losses in the domestic equity market. The Nikkei slid over 7 percent, partly due to a steep fall in Sony, which in turn dragged the Australian market down 2.6 percent.

The Aussie dived as low as 62.02 yen, a fall of almost 6 percent on the day and the lowest reading since late 2001. The fall brought losses in the last three months to a nose-bleeding 41 yen.

The U.S. dollar also slid over 2.5 percent to under 96.00 yen and only the fear of forex intervention from the Japanese authorities prevented even deeper losses.

The Aussie also dropped back on the U.S. dollar as shell-shocked investors fled to the world’s most liquid safe-haven — U.S. Treasuries. The local currency slid to $0.6510, wiping out an early bounce to $0.6745 and taking it closer to the recent five-year trough around $0.6330.

“At these levels the Aussie is looking vulnerable for a break towards 60 cents,” said Alex Joiner, an economist at ANZ.

“Any further sell off in Asian equity markets could prompt a further liquidation of carry trades and pessimism around commodity prices,” he added. “Any consolidation or rally in this environment is unlikely to be sustained.”

Australia is a major exporter of resources so recent steep falls in commodity prices augur ill for earnings, particularly as major customers in Asia, and notably China, are slowing.

Copper, a bellwether for industrial demand, was down 18 percent for the week so far, the second-biggest fall on record. Coal, iron ore, wheat and nickel were all lower.

With the outlook for the local economy getting ever grimmer, investors pushed three-year bond futures up 0.090 points to 95.700. The 10-year futures contract climbed 0.135 points to 95.035 as the yield curve flattened slightly.

Bill futures firmed further to price in around 100 basis points of easing by the RBA by year-end.

—————-(Snapshot at 4:10p.m./0510MT)——————

FUTURES CASH YIELD

90-DAY BILL (DEC) 95.170(+0.030) 5.89 (5.85)

3-YR BOND (DEC) 95.700(+0.090) 4.29 (4.45)

10-YR BOND (DEC) 95.035(+0.135) 4.96 (5.15)

AUD/USD 0.6510 (0.6674) US 10-YR 3.61 (3.71)

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AUD VS 2-YR 10-YR *AUD 3-YR/10-YR SPREAD

USD +252 (+258) +134 (+144) *FUTURES +0.660 (+0.670)

CAD +194 (+200) +132 (+146) *AUD 2-YR/10-YR SPREAD

NZD -132 (-148) -97 ( -81) *CASH +90 ( +99)

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Source: http://www.afxnews.com

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