RBA Buys Australian Currency as It Nears 5-Year Low

By Candice Zachariahs

Nov. 21 (Bloomberg) -- The Reserve Bank of Australia bought its own currency in the market for at least the fifth time in four weeks, arresting a decline toward a five-year low amid a rout in global equities.

The central bank bought a record A$3.15 billion in the market in October, it said yesterday, as the Australian dollar touched 60.10 U.S. cents, the lowest since 2003. It has confirmed supporting the Aussie, as its called, on three occasions in October and two in November. The last time the RBA was a net buyer was in 2001, after the dotcom bubble burst, when the Aussie traded at a record low of 47.75 U.S. cents.

``The global economy looks like a bit of a train wreck at the moment, and it's difficult to stand in front of a roaring train about to derail,'' said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney. ``In the near term it's probably going to provide some support, but ultimately we're going to test 60 cents at some stage.''

Australia's currency dropped 2.6 percent to 61.09 U.S. cents as of 11:50 a.m. in Sydney from 62.72 cents late in Asia yesterday. It traded as low as 60.76 cents.

An RBA spokesman confirmed the bank bought Australian dollars this morning, ``providing liquidity as on previous occasions.''

The bank's previous record purchases came when it bought A$2.63 billion in June 1998 during the Asian financial crisis.

Dotcom, Asian Crises

``The numbers are certainly large, but not surprising given the global crisis is larger than the Asian crisis and given daily foreign exchange turnover has grown enormously since the late 1990s,'' wrote Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut, in a note dated yesterday.

The RBA's net reserves dropped to $30 billion last month from the 2008 peak of $34.6 billion in July, according to the central bank's figures.

Australia's central bank bought a net A$2.09 billion during a seven-month period in 2001, according to the bank's data, after the dotcom bubble burst. The currency reached a record low of 47.75 cents in April 2001.

``The RBA was buying the Australian dollar well before it made its final low in 2001, and was selling the Australian dollar for most of its subsequent climb,'' wrote John Horner, a currency strategist at Deutsche Bank AG in Sydney in a research note on Oct. 30. The currency will trade in the ``high 50s by the year's end,'' he said in an interview this week.

`No Particular Level'

Recent interventions weren't ``designed to defend any particular level of the exchange rate,'' policy makers said in minutes of their Nov. 4 meeting, released in Sydney Nov. 18. ``On a number of occasions,'' the bank bought Aussie when conditions in the market were ``particularly thin,'' it said.

Separately, the central bank sold $2.7 billion in a repurchase operation funded by the U.S. Federal Reserve. The RBA offered $10 billion of the 21-day facility in a sale announced yesterday.

The U.S. Federal Reserve in September arranged to channel U.S. dollars into the global financial system by opening currency swap lines with central banks worldwide including the RBA.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net