Delivering the keynote speech today at the Australian-Israel Chamber of Commerce in Melbourne, Australia, Prime Minister Julia Gillard expects the Australian dollar will remain relatively strong for years to come, driven by its new found “safe haven” status and as investors use it as a proxy currency for the Asian region.
The Prime Minster stated that the European crisis was of a different nature – one stemming from concern about sovereign risk and the need for eurozone governments to undertake “long-term fiscal repair”.
“If anything of value can be retrieved from the wreck of failed economic approaches in Europe … it is the lesson to the world: fiscal discipline matters,” she said.
“My firm conclusion is that handing down a budget surplus in May is the right call in the present economic circumstances.
“Our fiscal policy must be disciplined and must be seen to be disciplined as well. It’s in our interest to keep ourselves well ahead of the pack.”
She concluded today another driver for the currency had been investors using it as a substitute for betting directly on growth in the region, especially in China.
This was Australia’s reward of the Government’s fiscal discipline, she said.
“Add the relative woes of European economies – touching even traditional currency strongholds like Switzerland – and for the first time in history Australia is being referred to as something of a global ‘safe haven’,” she said.
“What is certain from all this is our dollar is likely to remain relatively high for years to come.”
“There will be more ups and downs in global markets for as long as it takes for Europe to get its house in order.”
This resounds of a stern lecture, to the EU leadership, who seems to be having a problem doing just that.
St George Bank economist Janu Chan said that optimistic news from the eurozone had encouraged trading in the Australian currency.
The Greek Prime Minister (Lucas) Papademos said there had been progress in the talks, and they were coming closer to reaching an agreement. That said, there’s a pretty good risk appetite in Australia generally, given our generally strong fundamentals.
There are fundamental issues that we remain concerned about – particularly Greece’s ability to stimulate growth, given their austerity measures.
Today, the Australian Prime Minister will promise tax cuts to business which the Opposition yesterday said were too expensive to implement.
The Prime Minister will also tell families a Labor Government will create a new range of jobs, and keep taxes down.
Ms Gillard will use a speech resembling an election campaign opener to stake out economic management as her preferred battleground with Opposition Leader Tony Abbott.