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1996 WAS a superb year if you were a Belgian dentist with exposure to the Australian dollar market; but a lousy one if you were an Australian exporter.
Propped by the govemment's repeated commitment to restricting inflation within a restrictive 2% to 3% band, by early December the Australian currency was trading at a six-year high against the US dollar of US$0.82/A$1, compared to around US$0.76/A$1 prior to March's election in Australia, which ousted Labour prime minister Paul Keating from power.
The low inflation/strong currency combination lured retail investors into the Aussie dollar during the first half of the year, but the magic waned during the next six months, leaving overall volumes just a little above those achieved in 1995.
The March election victory for the new coalition government in Australia was generally viewed as positive for the economy by international investors who perceived that the new government would follow a much more restrictive monetary stance, more akin to that of the Reserve Bank of New Zealand than of Keating's government.
In the weeks following the election a clear pattern emerged suggesting that many foreign investors were switching out of other high-yielding currencies into the Aussie dollar sector. As a result, new money mingled with redemption funds to ensure a strong take-up of Aussie dollar bonds in the first and second quarters of the year, prompting one market participant to reflect at the time on a return to the "good old days" of the Aussie dollar sector.
Although the Aussie dollar retreated in December following the year's third cut in local interest rates -- which fell from 7.5% in July to 6% by midDecember - the currency's strength over the year as a whole rewarded the slew of retail investors who piled into the Australian dollar market in the first half of the year.
That the Aussie dollar market continued to be overwhelmingly dominated by retail investors in 1996 is evident from the total activity in the sector. In 1995, a total of A$13.5bn was raised in the primary Australian dollar market; by the end of 1996 just under A$13bn had been raised.
But while 1995 saw 88 issues in the sector, in 1996 well over 100 issues had...