High dollar worries RBA

THE Reserve Bank has dialled up the heat on the high Australian dollar, warning the elevated currency could hamper productivity and employment prospects and delay the nation’s economic recovery.

Marking a clear strategic shift on the recalcitrant dollar, RBA governor Philip Lowe singled out the Aussie while simultaneously keeping a steady hand on the interest rate lever.

“The higher exchange rate is expected to contribute to subdued price pressures in the economy,” Dr Lowe said in the statement accompanying yesterday’s interest rates decision.

“It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

His comments came as the central bank confirmed it had kept the cash rate on hold at a record low 1.5 per cent for a 12th straight month.

The rising Australian dollar

was a “double-edged” sword for Gold Coast Skydive owner and managing director Archie Jamieson.

“We get a lot of our equipment and supplies from the States, so the stronger dollar means I can get that cheaper,” Mr Jamieson said.

But Mr Jamieson said about 40 per cent of his customers were foreign holiday makers so a higher Australian dollar “does also have an effect on the overseas tourist market”.

“There are a lot of variables for our business, for example the weather, which can have a major impact,” he said.

Yesterday the Aussie briefly slid back below US80¢ before regaining that ground just as swiftly. Late yesterday, it was fetching US80.12¢.

That’s bordering on twoyear highs and a level the currency has enjoyed for the best part of a fortnight.

The local currency was about US76¢ when the RBA met in July.

It’s come on the back of a rebound in commodity prices, including key Australian export iron ore, and an unloved US dollar in the wake of a more cautious tone on the path of rate hikes from the US Federal Reserve.

Capital Economics chief Australian economist Paul Dales said the RBA appeared to be taking a practical approach to the dollar.

“While it has some capacity to influence market interest rate expectations in Australia, it can’t influence them in the US and it can’t lower the iron ore price,” Mr Dales said in a research note.

Commonwealth Bank chief economist Michael Blythe cautioned against reading too much into the comments, with the RBA noting that its forecasts for the economy were “largely unchanged”.