Australia to float dollar

Press, 10 December 1983, Page 1

Australia to float dollar

Business editor Dearer Australian holidays but benefits for New Zealand manufacturers and the tourist industry may be some of the effects of Australian foreign currency moves yesterday.

After a week in which ?IV 2 billion poured into Australia in anticipation of a revaluation of the country’s dollar, the Federal Government yesterday announced that its dollar would float against international currencies.

This means that supply and demand caused by trade, investment, and speculation patterns will set the value of the Australian dollar in terms of the American dollar, the yen, the West German mark, sterling, and other main currencies.

Until yesterday, Australia had what is known as a dirty float, or a basket system of currencies. This is what New Zealand has, and, according to sources in Wellington last evening, will keep. New Zealand’s currency is fixed by a secret formula drawn up by the Reserve Bank. It is related to the currencies of its leading trading partners. Which partners, and the proportions of each currency used in the formula, are secret to make it harder for speculators.

Australia is certainly one of the countries in the basket. With its mineral resources and economic potential, the Australian dollar is certain in the long term to rise against most international currencies. • This will not mean an over-all weakening of the New Zealand dollar. If the Australian dollar rises in relation to the value of other countries’ currencies in New Zealand’s basket, their cost, in New Zealand currency, will tend to fall. It is like an equation, in which on one side the New Zealand dollar is fixed. On the other side of the equals sign the foreign currencies are in the basket. Each will change against the New Zealand dollar, but in total they will remain static. Because the Australian dollar is now unpegged, and almost certain to rise, Australian money will become dearer in New Zealand. This will mean our exports under the closer economic rela-

tions agreement will become more competitive, perhaps to the point of stimulating more protectionism among Australian manufacturers.

It means New Zealand tourists will get less in Australia for their New Zealand dollar. But it also means that the Australian tourists will get more for their money here; that the New Zealand skifields will be more competitive with those in Victoria; that New Zealand sheepmeat, wool, and dairy exports will regain an edge against their Australian counterparts. However, because of the dirty float’s fixed equation, it means that as the Australian dollar rises against currencies such as Japan’s, New Zealand will tend to lose some competitive edge there. Similar things will happen in other countries.

Some New Zealand exporters are saying in private that New Zealand currency is, if anything, slightly’ undervalued. They say there are few problems in selling the new horticultural exports and a few, but promising, high-technology exports such as industrial electronics products and computer software. Supply and marketing are the main problems here.

The over-all effect for trade should be favourable if there is not anti-C.E.R. backlash in Australia because of the currency movement.

■ It appears likely that the New Zealand Government and the Reserve Bank will ignore the Australian move and treat the Australian dollar as just one more floating currency in a tradeweighted basket full oi floating currencies.

The decision to have the

Australian dollar exchange rate determined by the market in future was announced by Mr Keating last evening. The announcement followed up a request to the Reserve Bank yesterday morning to suspend dealing's by trading banks in foreign exchange except for bona fide travellers and other small personal transactions. Mr Keating said the action had been necessary because of the continued high level of speculative capital inflow and advice that the inflow was expected to intensify.

The Prime Minister, Mr Muldoon, said in Auckland last evening that the floating of the Australian dollar would not necessitate any movement of the New Zealand dollar. He declined to elaborate.

The selling rate for the New Zealand dollar yesterday, according to' the National Bank, was: $U50.6473; £0.4514; and 151.04 yen. The Reserve Bank yesterday suspended all dealing in foreign currency. “We have stopped dealing in all currencies because of what is happening in Australia,” said Mr Ray Hardie, the bank's chief cashier. Mr Hardie said that no rates for dealing were being quoted until the rate of the Australian dollar to the United States dollar was established. This affected the rate of the New Zealand dollar to the United States dollar and the rate of the New Zealand dollar to the Australian dollar, he said. Earlier, trading banks had suspended trading in Australian dollars pending a decision on the future rate of the currency.