Australian Central Bank Intervened on Oct. 24 as Currency Fell

By Garfield Reynolds

Oct. 27 (Bloomberg) -- The Reserve Bank of Australia intervened to buy Australian dollars on Oct. 24, when the currency slid to a five-year low of 60.57 U.S. cents.

The central bank was ``providing liquidity into an illiquid market,'' a spokesman for the Sydney-based RBA said today by phone. He declined to be identified. The bank ``will continue to provide liquidity'' and may intervene again in similar circumstances, according to the spokesman.

Australia's dollar plunged 9.7 percent against the greenback and 16 percent versus the yen last week as investors bought back currency borrowed in so-called carry trades.

The Australian dollar fell 0.9 percent to 61.71 U.S. cents at 9:57 a.m. in Sydney, from 62.23 cents on Oct. 24 late in New York. It dropped 1.9 percent to 57.56 yen, from 58.68 yen in New York last week.

In carry trades, investors get funds in nations such as Japan that have low borrowing costs and buy assets where returns are higher. The risk is that currency moves erase the profits.

Australia's benchmark interest rate is 6 percent, compared with 0.5 percent in Japan and 1.5 percent in the U.S.

Central banks intervene in currency markets by arranging sales or purchases of foreign exchange.

To contact the reporter on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net