Australia central bank intervenes to buoy ailing Aussie

Source: Agencies  |   2008-10-27  |     ONLINE EDITION

AUSTRALIA'S central bank intervened for a second day today to prop up the tumbling Australian dollar after investors hammered the currency to multi-year lows in the face of the global credit crisis.

The Reserve Bank of Australia (RBA) said the action was aimed at boosting liquidity in the market. It did not reveal how much it had spent buying the local currency on Friday and today, or at what level it intervened.

The last time the central bank intervened to shore up the currency was in August 2007, when the US subprime mortgage meltdown first set the global credit crisis in motion.

"We did intervene for a while this morning as the activity was similar to that on Friday," a central bank spokesman said.

By 4.15 pm (0515 GMT), the Australian dollar was at US$0.6115, not far from a five-and-a-half low of US$0.6055 on Friday, and at 57.29 yen, up from Friday's 55.11 on the yen -- its lowest level against the Japanese currency since it was first floated in 1983.

The currency, known as the Aussie, has fallen about 45 percent against the Japanese currency and 38 percent against the US dollar since peaking three months ago.

The yen surged last week, hitting a 13 year high against the dollar and a six-year high against the euro as investors cut overseas investments funded in the currency and repatriated funds. At one point on Friday, the euro dropped more than 10 percent against the yen.

That culminated on today with a warning by the Group of Seven rich nations that the yen's wild swings threatened financial stability, fanning speculation other central banks may intervene in the foreign exchange markets to halt the rally in the Japanese unit.

The Aussie has tumbled as investors unwound a five-year long boom in carry trades -- where investors borrowed in cheaper currencies like the yen and Swiss franc to buy high-yielding Australian assets like local government debt.