Aussie dollar breaks the buck as Australia, India fight Fed with 'quantitative tightening'

The Telegraph ^ | 11/2/2010 | Ambrose Evans-Pritchard

[bruinbirdman]

Australia's dollar has blasted through parity against the US dollar after the country raised interest rates a quarter point to 4.75pc to fight inflation.

The long-awaited moment of "triple parity" seems imminent. The Swiss franc is already worth more than a greenback, and the Canadian dollar is seemingly poised to break through as well.

The surging "Aussie" - widely seen as a play on the China growth story and used by traders as a proxy for the Chinese yuan - captures the shift in the world's economic centre of gravity to the Pacific region. The currency was worth half a US dollar just nine years ago.

Australia's reserve bank said the "the economy is now subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity. The risk of inflation rising again over the medium term remains".

The move caught markets off guard. Credit growth has been cooling off over recent weeks and inflation is still just at 2.8pc - compared to 3.1pc in the UK - but the bank appears concerned about the risk of a wage spiral.

HSBC said emerging markets and commodity exporters such as Australia are opting for "quantitative tightening" to offset the liquidity effects of quantitative easing in the US, which is causing a flood of money into faster growing economies. Several states are toying with capital controls.

India's central bank has also tightened further, raising rates a quarter point to 6.25pc. It has imposed draconian housing curbs to reduce "excessive leveraging" and prick the bubble, limiting mortgages to 80pc of property values.

It may have responded with too little too late.

"Interest rates have been negative in real terms for 26 months, and heavily negative for several months," said Maya Bhandari from

[FromLori]

ZeroHedge has an article about this as well..

Dollar Death Bed: Aussie Beyond Parity For First Time In 28 Years

http://www.zerohedge.com/article/dollar-death-bed-aussie-beyond-parity-first-time-28-years

[sinsofsolarempirefan]

As a numismatist I find this fascinating. This means that the Australian Pound (worth two Australian Dollars at the time of decimal conversion) is now worth more than the British Pound, which is worth, $1.60US. If the Australian Pound still existed, it would be worth $2.00 US or about £1.25 GBP. So much for the ‘Australian Rupee’ as it was derisively known by smug pommies following years of depreciation in comparison to the GBP....

[bruinbirdman]

Interesting comparison.

Bloomberg money changer has:

2 AUSTRALIAN DOLLAR (AUD) = 1.2308 BRITISH POUND (GBP).

1 AUSTRALIAN DOLLAR (AUD) = 0.9869 US DOLLAR (USD) as of 5 PM PDT.

1 BRITISH POUND (GBP) = 1.6036 US DOLLAR (USD)

yitbos