Now it appears that the actions of foreign central banks might be another factor to consider. The Russian central bank recently bought $4.7billion of AUD. It seems that our relatively good economic performance is attracting a fair bit of attention.
There are suggestions that the RBA might want to intervene to take the pressure off the AUD, and indeed their current dealing reflect concern over the high value of the dollar. Maybe this a partly a factor in their fx dealings, but it doesn't appear to be (see chart below for RBA fx dealings).
I think a reasonable middle ground is to support a mining resource tax and a sovereign wealth fund to balance our economy. I recently suggested that Quarry Australia was not a desirable place to be, and some type of counterbalancing policy would be inherently stabilising.
Whether this would have much of an impact on the AUD I don’t know. But another part of me thinks – stuff it. Go all in. AUD to $1.25+. The non-mining sectors of the economy will get the shake up they really need to improve efficiency and competitiveness in the long term. You see I wasn't thinking long term. Maybe short term pain would give productivity the jolt it so desperately needs.
But of course, there are real people's lives to consider as well, and shake-ups like that are painful.
The other argument to consider is that Australian businesses benefit when foreign markets are booming, so why not let them face the risks when foreign markets are failing?
Given the high probability that any government intervention will be an ineffective mess anyway, maybe we should just let the market function for a while.
There are plenty of questions, but unfortunately no easy answers. Expect much more debate on this situation in the coming months.
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