Fed tipped to intervene as aussie nears parity with greenback

Australia's dollar traded near parity with the US currency yesterday amid renewed speculation that the Federal Reserve is about to restart its policy of "quantitative easing".

The aussie was poised for a nine-week advance versus the greenback before a report next week forecast to show declines in US housing starts.

New Zealand's dollar touched its strongest since July 2008 on Thursday and Canada's dollar reached parity for the first time since April as investors sought currencies of nations with higher interest rates.

"Whatever the reason, investors want to sell the dollar," said Kazumasa Yamaoka, a chief strategist at investment advisory company GCI Research Institute in Tokyo.

"Most recently, strenuous expectations for additional easing are giving them an impetus to sell the greenback, and they spend the proceeds on higher-yielding currencies such as the aussie which have yield advantage."

Australia's currency was at US99.12c yesterday. It touched a record US99.94c on Thursday. New Zealand's dollar was at US75.70c from US76.14c on Thursday, when it reached US76.44, the highest level since July 2008.

The US dollar hit a 15-year low point against the yen and a near nine-month trough against the euro, helping to drive gold to a new record. A decision by the Singaporean authorities to widen their currency's trading band, in effect allowing a revaluation, propelled the Singapore dollar to an all-time high against the greenback.

Sterling, too, rose, reaching an eight-month high against the dollar. But it was relatively weak against the euro; as with the US, markets are starting to price in a further round of quantitative easing. In both countries, this implies even lower interest rates, an increase in supply against other currencies and gold, and adds to fears in some quarters about inflation.

Speculation that the Fed was ready to intervene has been heightened since its chairman, Ben Bernanke, spoke about the option at the Jackson Hole conference of central bankers earlier this year. Minutes of the last Federal Open Markets Committee meeting (FOMC), published on Wednesday, revealed new enthusiasm for "printing money".

"Many participants noted that if economic growth remained too slow to make satisfactory progress towards reducing the unemployment rate, or if inflation continued to come in below levels consistent with the FOMC's dual mandate, it would be appropriate to provide additional monetary policy accommodation," the minutes said.

Quantitative easing
* The direct injection of electronic money into the economy - often described as "printing money".
* One approach is for a nation's central bank to buy up existing financial assets, such as government bonds and mortgage-backed securities but fund the purchases with "new" money rather than borrowing it.
* Another approach used by the US Federal Reserve last year is to borrow money by issuing Treasury Bills and use this to buy riskier assets, allowing credit to spread more widely.

- Bloomberg, Independent