The Australian dollar keeps falling and Uncle Sam is completely to blame.
The currency is plumbing one-year lows, heading past 96.50 US cent on Thursday, after being above parity for most of the past year.
As the US economic recovery gets a bit stronger, there’s more talk the US Federal Reserve could soon end its program called quantitative easing (QE) – whereby it buys bonds from banks to encourage borrowing and, therefore, stoke economic growth.
That’s caused the US dollar to rev its engines and go on a tear. It’s risen more than three per cent against the major currencies in the past month.
On Wednesday night, Fed chairman Ben Bernanke confirmed to a Congressional committee that it was likely the central bank’s $US85 billion-a-month program would be wound down by the end of the year.
That was later confirmed when the minutes of the Fed’s most recent policy making meeting revealed there’d been discussion about reducing bond purchases.
LTG Goldrock director Andrew Barnett said currency traders were jumping back into the US dollar – and he didn’t see the Aussie dollar getting back to parity any time soon.
“The market is so in love with the US dollar at the moment,” he said.
“The only thing that will save the Aussie dropping any further is some decent (local) economic news that will point it back up. But, nothing is on the radar.”
Some people, namely Treasurer Wayne Swan and Reserve Bank of Australia governor Glenn Stevens will be pleased the currency is dropping.
In his budget speech last week, the Treasurer blamed the high Australian dollar for the larger deficit.
“Powerful global forces and the stubbornly high Australian dollar have savaged budget revenues,” Mr Swan said.
The RBA governor on a number of occasions has said the high Australian dollar was a factor in why the central bank had made a series of interest rate cuts, sending the cash rate to a record low of 2.75 per cent.
One instance was in testimony to a Parliamentary committee in February.
“My sense is that it (the dollar) is too high … but we’re not talking 50 per cent or something like that,” Mr Stevens said.
A lower Australian dollar makes exports cheaper and would reduce the number of imports because they would be relatively more expensive.
