Sunday, 6 January 2013

The Rise and Rise of the Australian Dollar

If the Australian dollar continues to remain stubbornly high, ANZ Bank chief economist Warren Hogan has warned that the Reserve Bank of Australia (RBA) will be forced to cut interest rates by as much as 100 basis points in 2013, according to The Australian. 

Mr Hogan's comments bolster calls from business and union leaders earlier this week for the central bank to cut rates further.

“The big problem in Australia is that the persistent strength of our dollar has a slow-draining effect on the economy,” he said, according to The Australian.

Mr Hogan conceded that rate cuts alone are unlikely to take some of the life out of the Australian dollar – as rate cuts made throughout 2012 failed to dampen the dollar's strength. Global investors have persistently seen the Australian dollar as a safe haven, especially compared to the US dollar, countering any domestic policy moves to weaken the Australian dollar's strength.

The bank economist called for a discussion on whether the RBA should actively intervene to sell down the dollar, as the end of the mining boom may make it necessary for interest rates to remain low to cushion the broader impact of the decline in mining investment. 

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