The fruits of our blinkered and ideological commitment to a strong dollar really are beginning to show. From the AFR:
The Russian central bank has stepped up its purchase of Australian dollars, helping to explain the currency’s persistent strength despite recent interest rate cuts.
The Central Bank of Russia has reportedly been buying Australian dollars in tranches when exchange rates are favourable for about the past six months as it builds up reserves, say traders.
The Australian dollar closed on Friday at $US1.038, higher than the close of $US1.027 on the day the Reserve Bank of Australia last cut interest rates in October. That suggests continued offshore demand for the currency that is relatively insensitive to movements in interest rates.
Russia announced in 2011 it was planning to include Australian dollars in its reserves as early as February this year and appointed National Australia Bank as a local counterparty. Up to 1 per cent of its $US526.4 billion of reserves, or $US5.3 billion, is expected to be purchased
The paper went on to list the major central banks believed to be buying the AUD: Russia, Abu Dhabi, Qatar, Kazakhistan, China, Vietnam, Philippines, Czech Republic, Switzerland, Germany.
Now, this is getting pretty farcical. Russia is a major mining power and competitor. It is a quite unpleasant autocracy as well. The same can be said of the first six on the list.
It’s all very well to maintain a commitment to a free floating currency in a free market when the world is committed to free floating currencies in a free market. But what exactly are we competing with here? The free movement of private investment decisions? Or the march of autocratic and strategic currency manipulation?
