Australia’s dollar dropped below parity with its U.S. counterpart for the first time in more than 10 months, three days after the nation’s central bank cut interest rates to a record low.
The so-called Aussie weakened versus most of its 16 major counterparts. The currency slid more than 3 percent this quarter, as Reserve Bank of Australia Governor Glenn Stevens cut the overnight cash-rate target by 25 basis points this month to 2.75 percent and indicated there is scope for further reductions.
The Australian dollar fell as much as 0.9 percent to 99.98 U.S. cents and traded at $1.0015 at 7.33 a.m. in New York. That’s the first time the world’s fifth-most traded currency touched below $1 since June 28. It is still above its post-float average of 76 U.S. cents.
The Aussie’s stretch above parity, the longest since exchange controls were scrapped in 1983, sparked calls for policy action from union leaders and businesses including Coca-Cola Amatil Ltd. and Orica Ltd., the world’s biggest producer of industrial explosives. The local dollar has declined 3.8 percent this year after surging 48 percent in the four years through Dec. 31, the biggest advance among more than 150 currencies tracked by Bloomberg.
The Reserve Bank will update its growth and inflation forecasts in today’s quarterly statement on monetary policy.
The Aussie’s resilience damped the outlook for the South Pacific nation’s exports, which include iron ore, coal and liquefied natural gas. The RBA’s commodity price index fell 9.3 percent last month from a year earlier in Australian-dollar terms, according to figures released May 1. A Feb. 28 statistics bureau report showed an unexpected decline in business investment in the fourth quarter.
It has also slashed government earnings, spurring Prime Minister Julia Gillard to scrap plans to boost help for low-paid families even as her Labor party trails in polls before the election due in September.
Her minority government scrapped in December a pledge to return to surplus this fiscal year and said this month it faces a A$17 billion ($17 billion) revenue shortfall in the 12 months ending June 30. Treasurer Wayne Swan said this month revenue has taken a “huge whack” from the high Aussie dollar and he faces “very challenging” fiscal circumstances as he prepares to deliver the budget for the coming year on May 14.
Australia’s currency has been buoyed by demand from international investors looking to diversify their assets. The RBA said Feb. 28 the Aussie is held by as many as 34 central banks, according to documents released under a Freedom of Information Act request by Bloomberg News. China and France were among possible buyers added to the latest list.
Even after 2 percentage points of reductions since November 2011, Australia’s benchmark borrowing cost remains the highest among major developed nations. It compares with a record low 0.5 percent in the euro zone and in the U.K. and near zero rates in the U.S. and Japan.