The Australian currency “is still putting a handbrake” on some industries even as it has fallen below parity with the U.S. dollar, Treasurer Wayne Swan said.
“It’s good to see the Australian dollar depreciating, as it should as our terms of trade weaken and as the U.S. begins the very long journey back to normal monetary policy settings,” Swan said today in Canberra, referring to Australian export prices relative to import prices and Federal Reserve plans to slow bond purchases. “This should make the transition towards non-mining sources of growth a bit easier.”
The currency slumped 11 percent this quarter, the worst performer among group of 10 currencies tracked by Bloomberg, as signs mount that the U.S. economy is strengthening and growth is slowing in Australia’s biggest trading partner, China. Industry has been squeezed by a currency that held above $1 from mid-June last year to May 10, the longest stretch above parity with the U.S. dollar since the Aussie was freely floated in 1983.
“There’s no doubt the high Australian dollar has checked the growth of manufacturing in Australia as well as important service export industries such as tourism,” Swan told the Committee for Economic Development of Australia. “It’s obviously also hurt our farmers and hit profitability in mining.”
The Reserve Bank of Australia lowered borrowing costs by 2 percentage points in the past 20 months to a record-low 2.75 percent as it seeks to rebalance growth from mining regions in the north and west that have thrived toward manufacturers in the south and east that struggled under the currency’s weight.
“We can also acknowledge that the higher dollar has increased the real incomes of Australians and helped keep inflation contained, helping the RBA to take interest rates down to record low levels,” Swan said. “We’ve been able to successfully manage the investment boom without feeling a lot of the pressures we experienced in earlier commodity price booms such as the early 70s and 80s.”
The ruling Labor party hasn’t led in polls for more than 18 months. A Newspoll in the Australian newspaper yesterday showed the opposition led Labor 57 percent to 43 percent on a two-party basis, designed to gauge which party is most likely to form a government under Australia’s preferential voting system.
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