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Aussie dollar falls to six-year low amid Greek turmoil

[SYDNEY/SINGAPORE] The Aussie dollar dropped below 75 US cents to a six-year low as the heightened risk of a Greek exit from the euro added to slumping commodity prices in spurring traders to sell the South Pacific nation's assets.

Australia's currency was already sliding as iron ore, the country's biggest export earner, tumbled amid a glut in supply and concern that demand will shrink as China's economy slows. With 76 per cent of the votes counted in the Greek referendum on austerity measures required for financial aid, "no" was ahead with 62 per cent, data on the Interior Ministry website show.

Reserve Bank of Australia chief Glenn Stevens said in December he would prefer about 75 US cents for the Aussie. He spoke repeatedly this year of the need for a lower exchange rate and cut the cash rate in February and May to help the economy cope with the collapse of a record mining investment boom.

"There were a number of factors that were already driving the Aussie lower, including weakness in the terms of trade and the strengthening of the U.S. dollar," said Robert Rennie, the global head of currency and commodity strategy at Westpac Banking Corp in Sydney.

"The Aussie is heading down toward 72 to 73 US cents, the only question is how quickly it gets there, and the impact of the Greek referendum on risk assets has given it an extra push."

The Australian currency dropped as much as 0.9 per cent to 74.53 US cents and traded at 74.56 US cents as of 5:52 am in Sydney. It has weakened 8.8 per cent this year.

Depreciation Needed

"The current level of the exchange rate, particularly on a trade-weighted basis, continued to offer less assistance than would normally be expected in achieving balanced growth in the economy," the RBA Board said in minutes of its most recent meeting published on June 16.

"A further depreciation therefore seemed both likely and necessary." Similar comments have come from RBA policy makers on multiple occasions this year - in meeting minutes, rate- decision statements, speeches and reports.

In addition to jawboning the currency, the RBA has sought to reduce the attractiveness of the Australian dollar by cutting its cash benchmark by 2.75 percentage points since late 2011 to a record low 2 per cent. That still leaves it above every other developed-nation peer except for New Zealand and the global hunt for yield remains a source of support for the Aussie.

The 10-year Australian sovereign bond yielded 3.07 per cent at the close of trading on Friday in Sydney, 0.69 percentage point more than similar tenor U.S. debt. Australia also offered 1.78 percentage points more than the average of the other seven top-rated debt markets, helping attract investors such as central banks and sovereign wealth funds.

Central bank holdings of Australian dollars surged 12 per cent to a record A$149.4 billion (US$112 billion) in the first quarter, data published June 30 by the International Monetary Fund show.

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Read more on the Greek crisis here.