WHAT was the best performing currency in the world last month? It was none other than the Australian dollar. No that is not a misprint. And I am completely sober.
The dollar climbed almost 9 per cent against the greenback to top 52 US cents. Chris Loong, manager of foreign exchange at AMP Henderson Global Investors, told the Bloomberg financial news service “there have been reports of substantial buying of Australian bonds and currency from international investors”.
This does not accord with the forecasts of commentators that the thumbs down to the Shell bid for Woodside would lead to the isolation of Australia and the crucifixion of the currency. Could they have been talking through their collective hat?
If the RBA had not cut interest rates half a percentage point last month, it would have been not so much behind the curve, but parked in a layby. Ian Mcfarlane could afford to stand pat at 5 per cent at the last policy meeting, with plenty of room to move if the domestic economy should deteriorate. The returns on Aussie dollar deposits are now a full point above their US counterparts, the largest differential for more than five years.
Perhaps foreign exchange traders are beginning to look at fundamentals. Plenty of people will give you an argument on this, but the fact of the matter is our economy grew at an average 4 per cent a year for most of the 1990s, beating the 3.75 per cent performance of the US. We outstripped the Yanks on most productivity measures, as a result of labour reforms. Moreover, far from being a nation of troglodytes, the IMF recently confirmed Australia topped the world in IT investment. We don’t make the tech kit on skinny profit margins you see, but we use it efficiently everywhere. Remnants of cultural cringe stifle this message, and the Government seems incapable of selling it.
If the Australian dollar gets a roll on, watch out for the pessimistic Percies whimpering that a stronger currency will crimp our exports. The dollar is still in the basement and it would have to climb a long way from 52 cents for that to happen.
