A Weaker Currency Isn’t Going to Help Australia
The conditions aren’t right for a competitive devaluation to boost exports and growth.
The central bank has often used the currency as a policy tool.
Photographer: Quinn Rooney/Getty ImagesNot everybody is observing the supposed ceasefire in the currency wars. The Reserve Bank of Australia lowered rates by 25 basis points each in June and July. The moves were ostensibly intended to ease monetary conditions and boost flagging growth. Their unstated purpose was to bring down the value of the Australian dollar.
Since the currency rate was floated in the 1980s, the RBA has repeatedly sought to weaken the dollar to buffer the domestic economy, most recently during the 2007-8 financial crisis. The Australian currency has fallen roughly 36% against the U.S. dollar from its highs in August 2011, although most of the decline took place before the recent rate cuts. There’s only one problem: A weaker currency isn’t necessarily good for the Australian economy.