Devaluing strong Aussie dollar 'disastrous' idea, says Swan

Australian Treasurer Wayne Swan. Photo / Mark Mitchell

CANBERRA - Federal Treasurer Wayne Swan says the stronger Australian dollar should be left unchecked.

The currency reached parity with the US dollar late on Friday night, a level not seen since the unit was floated in 1983.

Some experts expect the Australian dollar to be worth US$1.10 ($1.46) within a month. While a stronger Australian dollar is good for holidaymakers overseas, it is bad news for farmers and manufacturers as their exports become more expensive.

But Swan said intervening to devalue the Australian dollar would be disastrous.

"To artificially depress the value of the currency would be counterproductive as [that] would only succeed in driving inflation and interest rates higher, with damaging consequences for all sectors of the economy," he said in an economic note released yesterday.

Swan recalled the 1970s, when the Australian Government fixed the exchange rate as export prices exceeded import prices during the terms of trade boom.

"The result was headline inflation rose from around 5 per cent to 17.6 per cent in a little over two years," he said.

The aussie reached parity with the greenback about 11.18pm local time on Friday during overseas trading.

The aussie could reach US$1.10 within a month, AMP Capital Investors chief economist Shane Oliver said.

The Reserve Bank rarely interferes with the Australian dollar.

The central bank propped up the currency in October and November 2008 when the dollar threatened to fall under US60c during the dark days of the global financial crisis.

In different circumstances, RBC Capital Markets senior economist Su-Lin Ong said, an activist Reserve Bank would be unlikely.

"Despite the current level of the Australian dollar and rapid pace of appreciation recently, we doubt very much if the RBA is uncomfortable with the currency although, consistent with past behaviour, it may lean on it a little via its foreign exchange rate management."

- AAP