Australian Treasury Dismisses AUD Intervention Calls

Includes: FXA
by: Dean Popplewell

Australia'sTreasury Department said Friday that intervention in currency markets to depreciate the near- record Australian dollar would be ineffective or else cause greater macroeconomic instability.

Some business groups and unions have called for policy action to lower the currency-either through direct intervention in currency markets or by lowering interest rates-as exporters unconnected with the country's mining investment boom feel the pain of waning competitiveness.

The Australian dollar has risen about 70% since the global financial crisis in 2008, and currently trades near US$ 1.0515. The treasury said its rise has been fanned by rising commodity prices, higher relative interest rates and the low-risk environment offered by the country's debt market.

It has risen by around 10% since early June, helped in part by strong international central bank demand for the country's AAA-rated government bonds.

The treasury warned that market intervention was likely to fail and that cutting interest rates would be the best way forward if the strong Australian dollar started to severely harm the broader economy.

"Calls for Australia to shift away from its long-standing policy approach and take action directed at lowering the value of the Australian dollar are misplaced," the treasury said in its latest Economic Roundup. "Rather than helping the economy, the available options are likely to be either ineffective or result in greater macroeconomic instability."

The Australian dollar was weaker after the comments by Treasury. At 0530 GMT, it was trading at US$1.0473, down from an intraday high of US$1.0528.