SYDNEY, Oct 17 (Reuters) - Australia's surging dollar must be allowed to find its own market level despite the problems this may cause exporters, Treasurer Wayne Swan said on Sunday after the currency briefly reached rose above the U.S. dollar.
In a regular economic note on Sunday, Swan said that attempts to fix the currency during an ongoing trade boom had proved counter-productive, and the same could be expected now.
The Australian dollar briefly strengthened above the U.S. dollar in overseas trading on Friday for the first time since it was floated in 1983. It is widely predicted to continue to strengthen amid strong demand for Australia's resource exports.
'Some of us remember well the last time Australia attempted to fix its currency at the same time we were experiencing a terms-of-trade boom in the mid 1970s,' he wrote.
'The result was headline inflation rose from around 5 percent to 17.6 percent in a little over two years.'
Attempts to artificially depress the currency would drive inflation and interest rates higher 'with damaging consequences for all sectors of the economy', Swan said.
The treasurer said Australia's floating exchange rate had served the country well and should not be abandoned.
'Australia has had a floating currency now for more than a quarter of a century, and it has served our nation well as a shock absorber against global events,' he said.
'But we know that there are swings and roundabouts from the higher dollar, and while the dollar has beneficial impacts for consumers through cheaper imports and some businesses through cheaper capital equipment, it also makes it much harder for trade-exposed sectors of our economy to compete, like manufacturing, agriculture, tourism and education.'
(Sydney newsroom +612 62732730)
Keywords: AUSTRALIA DOLLAR / UPDATE 1
COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
In a regular economic note on Sunday, Swan said that attempts to fix the currency during an ongoing trade boom had proved counter-productive, and the same could be expected now.
The Australian dollar briefly strengthened above the U.S. dollar in overseas trading on Friday for the first time since it was floated in 1983. It is widely predicted to continue to strengthen amid strong demand for Australia's resource exports.
'Some of us remember well the last time Australia attempted to fix its currency at the same time we were experiencing a terms-of-trade boom in the mid 1970s,' he wrote.
'The result was headline inflation rose from around 5 percent to 17.6 percent in a little over two years.'
Attempts to artificially depress the currency would drive inflation and interest rates higher 'with damaging consequences for all sectors of the economy', Swan said.
The treasurer said Australia's floating exchange rate had served the country well and should not be abandoned.
'Australia has had a floating currency now for more than a quarter of a century, and it has served our nation well as a shock absorber against global events,' he said.
'But we know that there are swings and roundabouts from the higher dollar, and while the dollar has beneficial impacts for consumers through cheaper imports and some businesses through cheaper capital equipment, it also makes it much harder for trade-exposed sectors of our economy to compete, like manufacturing, agriculture, tourism and education.'
(Sydney newsroom +612 62732730)
Keywords: AUSTRALIA DOLLAR / UPDATE 1
COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.