Central Bank Intervenes to Catch Diving Aussie

Australia's central bank has intervened to support the tumbling Australian dollar, but failed to prevent its slide to five-year lows against the U.S. currency and its deepest-ever trough against the yen.

"Yes, we did intervene in the market on Friday," a Reserve Bank of Australia (RBA) spokesman said on Monday. "We are there to support illiquid markets," he added, when asked if the central bank would intervene in the future.

He declined to say how much the central bank had spent buying up the local currency. The last time it moved to shore up the currency was in August 2007, when the melt-down in U.S. subprime mortgages first exploded into a global credit crisis.

The Australian dollar has fallen more than 80 percent against the Japanese currency and more than 55 percent against the U.S. dollar since peaking three months ago at almost parity to the greenback.

Despite Friday's intervention in Europe, the local currency hit a 5-½ year low of $0.6055 against the U.S. dollar that same day and a record low low of 55.11 on the yen, its lowest point since the Australian dollar was first floated in 1983.

Australia's currency has become what some dealers call "the whipping boy" of global currency markets, as investors unwind a five-year-old carry trade: the practice of borrowing in cheaper currencies like the yen and Swiss franc to buy high-yielding Australian assets like local government debt.

Until recently, Australian interest rates were among the highest in the developed world.

Some economists expect the RBA will continue to intervene to try to calm the market for Australian dollars.

"The RBA has a good history of of providing liquidity during period of erratic price movements in the Aussie dollar and I do not the see the last action as more than that," said Robert Rennie, chief currency strategist at Westpac.

Analysts said the falling Australian dollar was likely to provide some support to exporters, struggling with a grim global outlook with many major economies from the United States to the eurozone on the brink of a recession.

"It's generally positive for companies because a lot of our exports are priced in U.S. dollars," said Eric Betts, equities strategist, Nomura Australia. "So it will offset some of the impact of the commodity price slump. It will also help the manufactures because they compete with imports. It will also help inbound tourism."

Australian miners rank among the country's biggest exporters, but their currency windfalls have to be weighed against a dramatic recent slide in global commodity prices as demand from their biggest customers, notably China, slows.

Canberra has already announced a A$10 billion stimulus package while the central bank has cut interest rates by a stunning 100 basis points to 6 percent to support households from the global credit crunch.

By 11:00 a.m. local time, the Aussie had inched up to $0.6215, while against the yen it climbed to 58.18 yen.

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