28 Oct 2008

RBA props up Australian dollar

8:49 am on 28 October 2008

The Reserve Bank of Australia intervened for a second day on Monday to prop up the Australian dollar.

The RBA said its move was aimed at boosting liquidity in the market.

It did not reveal how much it had spent buying the currency on Friday and Monday, or at what level it intervened.

The last time the central bank intervened to shore up the currency was in August 2007.

By 4.15pm (AEST) on Monday, the Australian dollar was at $US0.6115 and at 57.29 yen.

On Friday, the dollar was at 55.11 on the yen - its lowest level against the Japanese currency since it was first floated in 1983.

The currency has fallen about 45% against the Japanese currency and 38% against the US dollar since peaking in mid-July.

Until recently, Australian interest rates were among the highest in the OECD.

But on 7 October, the RBA cut rates by 100 basis points to 6%, ahead of a globally coordinated series of rate cuts by major central banks.

More RBA rate cuts are expected next month and in December.

NZ dollar

The New Zealand dollar continues to lose ground on Tuesday against the US dollar.

The kiwi is trading at about US 54.5 cents and is down by 33% against the US dollar this year.

But Bank of New Zealand currency strategist Danica Hampton does not think the kiwi will be weak for a long period of time.

She told Morning Report she is not predicting a prolonged weakness like there was in 2000 when the dollar spent about two years below US50 cents.

Ms Hampton says a combination of lower currency, lower interest rates and fiscal spending expected in 2009 will eventually help the economy find its feet.