The parity of Australia’s currency with the dollar reflects the strength of the economy, Treasurer Wayne Swan said.
Parity is a “milestone” that reflects the “stark difference in the strength of our economy relative to other nations,” Swan said today in his weekly economic statement. The floating currency has also served Australia well for more than a quarter of a century as a “shock absorber against global events,” he said.
Australia’s currency reached parity with the dollar on Oct. 15 for the first time since exchange controls ended in 1983 as the biggest mining boom in a century and U.S. stimulus prospects spurred demand for the nation’s assets. There “are swings and roundabouts” from the higher dollar, including weakening the competitiveness of local manufacturers, farmers, tourism operators and educational institutions, Swan said.
The so-called Aussie gained the most among the dollar’s 16 most-traded counterparts over the past three months as China’s demand for Australian coal and iron ore helped drive economic growth to the fastest pace in three years. Parity was reached after Federal Reserve Chairman Ben S. Bernanke said that additional monetary stimulus may be warranted.
“The Australian dollar is significantly over-valued,” Mike Hawkins, chief investment officer at Evans & Partners Pty told the Australian Broadcasting Corp. in an interview today. “The Australian economy, or large chunks of it, is very uncompetitive” and the dollar’s strength sends a signal to domestic consumers to spend their money overseas, he said.
Aussie Slips
Australia’s dollar slipped 0.4 percent to 99.07 U.S. cents at 5 p.m. in New York on Oct. 15, from 99.42 cents Oct. 14. It rose as high as $1.0004, the most since the currency was freely floated in 1983.
The median estimate of analysts polled by Bloomberg News is for the Aussie to trade at 95 U.S. cents by year-end. Banks including Credit Suisse Group AG and Wells Fargo & Co. forecast the Aussie will remain at or above parity through 2011.
“Some of us remember well the last time Australia attempted to fix its currency at the same time we were experiencing a terms of trade boom in the mid-1970s,” Swan said in the statement. “The result was headline inflation rose from around 5 percent to 17.6 percent in a little over two years.”
Controls on the currency ended on Dec. 12, 1983, and it closed trading that day at 91.75 U.S., according to the Reserve Bank of Australia. It was last equal to its U.S. counterpart on July 28, 1982, when the Aussie was pegged to a trade-weighted basket of currencies.
Hawke, Keating
Then-Prime Minister Bob Hawke and his Treasurer Paul Keating oversaw the decision to eliminate foreign-exchange controls and announced early in December 1983 that they were ending the Australian dollar’s peg to a basket of other currencies.
“We know that there are swings and roundabouts from the higher dollar,” Swan said. “While the dollar has beneficial impacts for consumers through cheaper goods and some businesses through cheaper capital equipment, it also makes it much harder for trade-exposed sectors of our economy to compete.”
The treasurer said he will be working closely with Group of 20 members in South Korea this coming weekend on issues including currency reform to ensure the global recovery is “balanced”.
Parity is a “milestone” that reflects the “stark difference in the strength of our economy relative to other nations,” Swan said today in his weekly economic statement. The floating currency has also served Australia well for more than a quarter of a century as a “shock absorber against global events,” he said.
Australia’s currency reached parity with the dollar on Oct. 15 for the first time since exchange controls ended in 1983 as the biggest mining boom in a century and U.S. stimulus prospects spurred demand for the nation’s assets. There “are swings and roundabouts” from the higher dollar, including weakening the competitiveness of local manufacturers, farmers, tourism operators and educational institutions, Swan said.
The so-called Aussie gained the most among the dollar’s 16 most-traded counterparts over the past three months as China’s demand for Australian coal and iron ore helped drive economic growth to the fastest pace in three years. Parity was reached after Federal Reserve Chairman Ben S. Bernanke said that additional monetary stimulus may be warranted.
“The Australian dollar is significantly over-valued,” Mike Hawkins, chief investment officer at Evans & Partners Pty told the Australian Broadcasting Corp. in an interview today. “The Australian economy, or large chunks of it, is very uncompetitive” and the dollar’s strength sends a signal to domestic consumers to spend their money overseas, he said.
Aussie Slips
Australia’s dollar slipped 0.4 percent to 99.07 U.S. cents at 5 p.m. in New York on Oct. 15, from 99.42 cents Oct. 14. It rose as high as $1.0004, the most since the currency was freely floated in 1983.
The median estimate of analysts polled by Bloomberg News is for the Aussie to trade at 95 U.S. cents by year-end. Banks including Credit Suisse Group AG and Wells Fargo & Co. forecast the Aussie will remain at or above parity through 2011.
“Some of us remember well the last time Australia attempted to fix its currency at the same time we were experiencing a terms of trade boom in the mid-1970s,” Swan said in the statement. “The result was headline inflation rose from around 5 percent to 17.6 percent in a little over two years.”
Controls on the currency ended on Dec. 12, 1983, and it closed trading that day at 91.75 U.S., according to the Reserve Bank of Australia. It was last equal to its U.S. counterpart on July 28, 1982, when the Aussie was pegged to a trade-weighted basket of currencies.
Hawke, Keating
Then-Prime Minister Bob Hawke and his Treasurer Paul Keating oversaw the decision to eliminate foreign-exchange controls and announced early in December 1983 that they were ending the Australian dollar’s peg to a basket of other currencies.
“We know that there are swings and roundabouts from the higher dollar,” Swan said. “While the dollar has beneficial impacts for consumers through cheaper goods and some businesses through cheaper capital equipment, it also makes it much harder for trade-exposed sectors of our economy to compete.”
The treasurer said he will be working closely with Group of 20 members in South Korea this coming weekend on issues including currency reform to ensure the global recovery is “balanced”.
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