The Australian dollar fell sharply yesterday after The Wall Street Journal exclusively reported a warning on the outlook for the Australian economy issued by ratings firm Standard & Poor's.
At 5pm AEDT, the dollar was buying $US1.0406, down US0.67c. It touched an intraday low of $US1.0378.
S&P highlighted risks to growth in the economy should mining investment slow sharply.
Terry Chan, a credit analyst at S&P, said most at risk from an "investment overhang" were commodity-exporting nations including Australia, which faced an "intermediate" risk of a deep slowdown -- one notch below the highest warning.
"We believe the level of a country's investment overhang can be a leading indicator of a potential economic correction," he added.
After a long period of stellar growth, mining investment in Australia is expected to taper off in the second half of this year, posing a threat to growth.
The Reserve Bank has cut interest rates sharply over the past year in a bid to spark dormant parts of the economy such as housing construction and retail sales. However, despite interest rate cuts totalling 1.75 percentage points since November 2011, there have been few signs of life in these key areas of the economy, which employ substantial numbers of people.
The S&P report helped draw the focus to an upcoming RBA policy meeting on Tuesday, its first for the year. Economists are not expecting an imminent cut in interest rates, but also do not rule out further cuts later in the year. Official interest rates now stand at 3 per cent, just above record lows set in the early 1960s.
In a survey of 18 economists by The Wall Street Journal, 13 expect no cut in interest rates next week.
Encouraging economic indicators had emerged earlier yesterday with new home sales rising in December, during a period when property markets are normally quiet. Credit growth also showed a small rise.
