RBA may have to act on resurgent Australian dollar, say economists

The Australian dollar rose as high as $US 0.7443 on Saturday, an eight-month high, and some economists are predicting the Reserve Bank of Australia may have to lower interest rates from the current 2 per cent.

The ABC reported over the weekend that the dollar was up sharply last week, and some economists have said there’s a danger in it appreciating too much.

"My feeling is that in the short-term we could see more upside in the Aussie dollar," Shane Oliver from AMP told the ABC on Saturday.

"And that the Reserve Bank will become increasingly uncomfortable, so they'll start to come out and say: 'Well, basically, we think it should be lower.'”

This morning Fairfax notes that the dollar touched an eight-month high on Saturday, and is up significantly from a low of $US 0.6827 in January.

BK Asset Management's director of foreign exchange strategy Kathy Lien told Fairfax the dollar could increase to at least $US 0.75.

"The only thing investors need to be mindful of is how the central bank views the currency. 

"We know they prefer the Aussie to be trading closer to US65¢ and, given that we are nearly [US10¢] away from that level, there's a risk of currency-related comments from RBA officials," she said.

A lower dollar has been a relief for industries such as tourism and manufacturing. The Australian Industry Group has noted the dollar’s ease as contributing to recent improved results for the sector.

The PMI recorded its eighth consecutive growth result in February’s figures.

“There is little doubt that greater competitiveness in export markets and in the domestic market due to the lower dollar is central to this turnaround,” said the Ai Group’s chief executive Innes Willox last week.

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