Australia's RBA Intervenes Again to Buy Aussie Dollar

Australia's central bank intervened to prop up the Aussie dollar for a third straight day on Tuesday after the currency fell to fresh 5-½   year lows against the U.S. currency in offshore trade.

A spokesman for the Reserve Bank of Australia (RBA) said the central bank was providing liquidity in an illiquid market, echoing comments made a day earlier. 

Dealers also said the central bank was buying the Australian dollar at around the $0.6060 level during the European session on Monday, but the RBA declined to confirm that.

"They are trying to make the decline less disorderly," said John Horner, foreign exchange strategist at Deutsche Bank. "Despite their intervention, the process of deleveraging and pricing of a global slowdown will continue to weigh down on the Aussie."

The Aussie has tumbled in recent months as investors unwound a five-year long boom in carry trades -- where they borrowed in cheaper currencies like the yen and Swiss franc to buy high-yielding Australian assets.

Falling commodity prices, amid fears of a global recession, have only added to the Aussie's woes, given that the country is a large exporter of natural resources.

The Aussie was at $0.6025, off a trough of $0.6007 struck in offshore trade, its lowest since April 2003. It has lost more than 38 percent since peaking in mid-July as investors shunned high-yielding currencies on the back of extreme risk aversion that afflicted global financial markets.

The Aussie was at 56.12 yen, not far from 55.11 yen struck late last week, which was its lowest since it was floated in 1983. The Aussie has lost about 46 percent against the yen in the last three months.

Analysts say the central bank was unlikely to spend large amounts shoring up the beleaguered Aussie. The RBA has relatively modest official reserves of A$36 billion ($21.6 billion), including A$33 billion of foreign currency.

In contrast, Japan has almost a trillion U.S. dollars in reserves, South Korea around $240 billion and Thailand $103 billion.

The central bank intervened regularly from September 2000 to September 2001, buying a net A$3.6 billion over that period, when the local dollar fell as far as 49 U.S. cents. Later, it made a healthy profit on those purchases by selling the Australian dollar above 80 and 90 U.S. cents.

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