PRESSURE is building on the Reserve Bank to follow the lead of the Swiss central bank and move to ease Australia’s soaring currency.
The dollar, which touched a four-month high yesterday, has been blamed for hobbling exports while crimping local producers as they compete in markets flooded with cheaper imports.
Central banks from Russia to Germany have been snapping up the Australian dollar, with the currency emerging as a haven in the face of Europe’s financial woes, particularly as Australia is one of just seven countries with a top AAA-credit rating and stable outlook.
The dollar traded as high as US106.03¢ after the RBA, as widely expected, opted to keep interest rates steady yesterday and said its settings for monetary policy were appropriate for now.
However, in a statement following its monthly monetary policy meeting, the central bank suggested it was taking closer scrutiny of the currency. It noted the dollar had “remained high” despite falling commodity prices and the weaker global outlook.
The Aussie rallied after the release of the RBA statement to its highest since March 20. Last night it was trading at US105.8.¢
The strength of the currency, up more than 70 per cent against the US dollar since the depth of the GFC, has been blamed for recession-like conditions in industries such as manufacturing and some retailers.
“The RBA has powers to intervene in markets if the currency is noticeably out of sync with the fundamentals,” said Australian Industry Group chief executive Innes Willox. ”In the current environment, one would expect that the bank has been considering the level of the currency and its options to influence its levels.”
Most of AIG’s members are manufacturers and engineering companies.
Meanwhile, Cochlear managing director Chris Roberts said yesterday that the rising dollar was partially to blame for the hearing implant maker posting a 68 per cent slump in profit. ”It’s a competitive, tough environment out there,” Dr Roberts said yesterday.
Morgan Stanley strategist Gerard Minack has calculated that Australia’s ”safe” status has added US10¢-15¢ to the dollar.
”Suggestions that the RBA intervene to cap the currency make sense, in our view, but we don’t think Reserve Bank action is imminent,” Mr Minack said.
Currency traders say the Russian Central Bank has been an active buyer of the currency in recent months – a move the cashed-up central bank foreshadowed earlier this year. Others including Germany’s Bundesbank and the Banque de France have also reportedly been adding to their holdings.
HSBC Australia chief economist Paul Bloxham said the RBA was likely to defer to monetary policy rather than dumping its holding of dollars, if it felt the high currency was straining the economy.
”The continued high level of the Australian dollar, despite recent falls in commodity prices, possibly provides further motivation for a further rate cut,” he said.
Still, National Australia Bank chief economist Alan Oster expects the dollar to remain high even if official cash rates are cut.
”You’ve got all these European central banks who might say that they’re going to stay with the euro, but they’re just doing a bit of insurance,” Mr Oster said.
The RBA is notoriously reluctant when it comes to currency intervention. Since a float in 1983, the bank has not targeted a level for the dollar.
Debate about possible intervention emerged in recent weeks after former RBA board member Warwick McKibbin reiterated his call for the central bank to do more to limit damage caused by the strong dollar.
In September last year, Switzerland vowed to peg the soaring Swiss franc against the euro in an attempt to protect its economy from the European debt crisis. The Swiss National Bank, in effect, devalued the franc, pledging to buy ”unlimited quantities” of foreign currencies to force down its value.
The RBA last stepped in to support the dollar when the collapse of Lehman Brothers in 2008 triggered a 40 per cent slide in the currency.
Following yesterday’s monetary policy statement, economists were tipping the RBA to push through a further 25 basis point rate cut by October. The central bank remains wary about Europe’s debt issues, a point repeated yesterday by RBA governor Glenn Stevens.
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