Australian Dollar - Pressure to Cut Rates

Written by Enda Curran - Wall Street Journal

SYDNEY--Australia's Prime Minister Julia Gillard added pressure on the central bank to cut rates in a speech to be delivered Wednesday saying that managing the strong Aussie dollar is beyond the control of the government.

"We cannot control a number of factors that have kept our dollar strong, like the weakness in the global economy, the close-to-zero interest rates of many nations and the increasing view that Australia is something of a safe haven," Ms. Gillard will say, according to extracts of a speech she is scheduled to deliver later Wednesday in Canberra.

Her remarks will add to pressure on the Reserve Bank of Australia, or RBA, to again cut rates in an effort to ease the strength of the currency, which is making Australian exports less competitive and hurting areas of the economy such as manufacturing and retail. The RBA is scheduled to meet on Feb. 5 to decide on rates after 1.75 percentage of cuts since November 2011 failed to dampen demand for the Aussie dollar. Rates in Australia remain high by international standards for developed nations at 3.00%.

Ms. Gillard's remarks are out of step with some members of the bank's board who argue that more aggressive action needs to be taken to moderate the currency. In an exclusive interview with Dow Jones Newswires last week, RBA board member Heather Ridout said that the economy needs more "active management" from policymakers to offset the impact of the strong currency.

In the speech, Ms. Gillard says there was likely to be little immediate respite for local businesses from the strong exchange rate.

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