Merrill under fire over raids on aussie

PUBLISHED : Wednesday, 10 June, 1998, 12:00am
UPDATED : Wednesday, 10 June, 1998, 12:00am

United States broking giant Merrill Lynch found itself in the firing line yesterday amid claims that it provided services to offshore hedge funds in their successful attack on the Australian dollar.

Australian officials were angry with the bank, Merrill Lynch International (Australia), for aiding the funds' assault on the aussie, which has fallen to its lowest level in 12 years, the Sydney Morning Herald reported.

The bank responded yesterday with a statement saying it had no positions of its own against the aussie.

This is hardly surprising as the house's research recommendations on the aussie earlier this year were far from accurate, touting it in February as the world's most undervalued major currency.

'Merrill Lynch has no material proprietary positions in the Australian dollar and at present has no principal foreign exchange operations based in Australia,' Merrill Lynch Australia's joint chief executives, Greg Bundy and John Magowan, said.

The Sydney Morning Herald said that after its alleged role the bank might face a dual penalty.

Citing unnamed sources, it said Merrill might be targeted by the government in day-to-day currency market operations and excluded from the invitation list for billions of dollars of trading in treasury notes and bonds.

Merrill Lynch officials said the bank acted on behalf of clients around the world 'and is one of many major firms which do so'.

The Australian dollar closed at 59.81 US cents yesterday.

In recent days, it has been hit by the fall of the yen, fears about the impact of the Asian crisis on the country's exports and aggressive hedge-fund activities.

Merrill has been one of the few Australian dollar bulls this year. In February, its researchers said: 'Our new econometric model suggests that the Australian dollar's tumble appears to have been overdone.' At the time, it put fair value for the aussie at 75 US cents. Last week, its target was at about 63 cents over three months and 65 cents in six months.