Call for RBA to stop our dollar’s slide

RESERVE Bank intervention could return some sanity to the currency market, according to David Hudson, chairman of the asset allocation committee of Merrill Lynch Investment Managers.

In his analysis of our currency’s weakness, Mr Hudson says our problems are caused by the strength of the US dollar.

He points to the fact the Aussie dollar has had an 80 per cent correlation with the Euro, despite the fact we have next to nothing in common with the European economies.

Foreign currency traders appear to have sold down all currencies in favour of the US dollar.

The Euro has suffered just as much as we have. It is simply a matter of a reality check to return some sanity into the market.

That could be assisted by the Reserve Bank intervening either by buying activities or increasing interest rates to make our currency more attractive to investors overseas.

Mr Hudson dismissed the old economy argument because “the currency continued to fall after the fallout in the Nasdaq in April”.

If the world was reassessing the “New Economy” the Aussie dollar would have been far better off.

He also dismissed the interest rate differential between the US and our rates, saying that the entire Australian yield curve from one year out is above the US yield curve but our currency continues to fall.