WSJ:Australian Dollar Up Late As Traders Debate RBA's Reserves
By ENDA CURRAN
SYDNEY--The Australian dollar was higher in Asia trade on Monday with the focus squarely on news that the Reserve Bank of Australia has been increasing its foreign currency reserves in recent months in a quiet attempt to apply downward pressure on the local currency.
The Aussie dollar has remained stubbornly above parity against the greenback even after a slew of interest rate cuts and a correction in commodities prices. Its strength is frequently cited as a source of concern by the RBA, given its impact on sectors such as exporters and retailers, who lose a competitive edge when the exchange rate is strong.
So far the RBA has shied away from openly intervening in the currency market by selling Australian dollars in an effort to weaken the unit.
Over the past two months, though, RBA data shows that reserves have grown by 863 million Australian dollars (US$890 million), compared with a monthly average of A$49 million in the second quarter.
While that move doesn't constitute open intervention it is nonetheless a tool that allows the bank to ease some of the upward pressure on the currency.
"This can be viewed as a covert and passive intervention in the Australian dollar of modest proportions, but nevertheless is a clear signal of a change in the RBA's view and intentions," said Andrew Salter, a currency strategist at ANZ Bank ANZ.AU 0.00% .
"By electing to reduce additional demand for the currency in the market, it is 'leaning' against the Australian dollar's appreciation," he said.
The news didn't appear to weigh on the Aussie dollar, which rose on the back of better sentiment linked to upbeat U.S. economic data. At 0550 GMT the Aussie dollar was buying US$1.0357 compared with US$1.0316 late Friday in Sydney.
The central bank has boosted reserves by not offsetting the "other outright transactions" on its books, as it would normally do to maintain a steady level of reserves. Other outright transactions include the RBA's dealings with other central banks and international financial institutions.
The RBA last openly intervened to influence the level of the currency during the global financial crisis in 2008, when it vigorously defended the Australian dollar as it plunged 40% in the space of weeks.
Some market analysts were quick to dismiss suggestions that the bank is seeking to influence the currency and pointed to a decline in the overall reserves holdings.
Still, they also acknowledged that policy makers are likely exploring a new route to tame the Aussie.
"It is possible that the RBA has attempted to dampen down strength in the Australian dollar with modest sales of Australian dollars to other central banks or an international institution such as the Bank for International Settlements that could effectively be working as an agent of the RBA to sell the Australian dollar," said Greg Gibbs, FX strategist at Royal Bank of Scotland RBS.LN -1.33% .
"Such action might be regarded as an undercover form of intervention operating in light volume below the radar," he said.
