The Aussie Will Start Singing Again. By Nicholas Hastings

Like the canary in the coalmine, the Australian dollar has fallen off its perch.

A blast of fetid air from the global financial crisis knocked it out.

But that doesn't mean the Australian dollar won't be singing again.

The fundamentals of the Australian economy remain strong and once global investors have regained their confidence and market liquidity has improved, the Australian dollar will be back on its feet again.

The knockout was certainly nasty.

Last week, the Australian currency was knocked down to a 10-month low at $0.8076 as fears of a euro-zone default spread to the global economy.

See the Aussie's dive:



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Instead of just pulling out of the euro, investors started to sell the currencies of countries, such as Australia, that have been leading the global economy out of recession.

Concern that this recovery will prove slower than anticipated caused commodity prices, including those of gold and crude oil, to ease back, reflecting the general outlook for lower global demand.

Reports that China is still trying to slow its economic growth, and could yet resort to an appreciation of the yuan, only contributed to the Australian currency's woes.

The decline in the Aussie became so steep at the end of last week--the currency tanked like it did at the start of the credit crunch in 2007--that there was talk of intervention by the Reserve Bank of Australia.

But this shouldn't be necessary.

There are already signs that Japanese investors are using the decline to buy the Australian currency cheaply and some analysts are already recommending similar strategies for dollar-based clients.

Although global financial market jitters could well continue for a while to come, and global liquidity levels could remain low, chances are that any sign of recovery will make the Australian dollar the first port of call.

Despite the recent decline, Credit Suisse Group says it is preserving its three-month forecast for the Australian dollar to rise to $0.97.

The Royal Bank of Scotland Group PLC reckons that while the Aussie might fall to $0.77, the Aussie still looks good.

"From a long-term perspective, use this as an opportunity to buy risky assets and the Australian dollar," the bank said.

BNP Paribas SA takes a similar line.

"We would...restart investing carefully into emerging markets commodity and high-yielding currencies including the Australian dollar," the bank said.

The Australian dollar was knocked sharply lower earlier Monday but then recovered to trade only slightly lower $0.8313 at 0645 GMT from $1.8320 late on Friday in New York, according to EBS.

The Aussie was initially hit by a decline in global appetite for riskier assets but then rebounded as Asian equities headed higher.

General market sentiment remains mixed after Spain came to the rescue of a failing savings bank, CajaSur.

Fears about a downgrade in U.S. banks also didn't help, even though talks between U.S. Treasury Secretary Timothy Geithner with Chinese officials in Beijing are once again leading to speculation of an imminent yuan appreciation.

The euro is down at $1.2496 from $1.2583 but steady at Y112.77 from Y112.80.

The dollar is also up at Y90.23 from Y89.64.

The latest data from the Chicago Mercantile Exchange show that speculative long positions in the Australian dollar were cut sharply in the week to last Tuesday even before the currency started its decline later in the week.