$A rises:It’s time to see Talahassee

If you have ever wanted to see Talahassee,  it’s time to start packing.

The $A is rising so strongly against the greenback now that it hit 94.3 US cents this morning.

So your trip should be cheap.

Indeed, with the Reserve Bank itching to raise Australia’s interest rates again next Tuesday talk of parity between the two currencies is not all that far fetched.

Especially if HBOS Australia economist Alan Langford is right. He is not predicting a 0.5 percentage point rise in rates next Tuesday. But he is warning that something “more aggressive” than the usual 0.25 percentage point rise “cannot be ruled out.”

Oil prices again hit a new record of $US102 a barrel overnight. While the strong $A is giving Australian motorists some protection from fuel price hikes, that is sure to worry the Reserve Bank board.

The Reserve Bank once regarded oil prices as just one more “volatile” item, like fruit prices, which could safely be ignored when setting rates. And, even now,  the prospect of severe snow storms in the North Eastern States of the US is, undoubtedly, pushing up oil prices.

Higher fuel prices, though, do seem to have found a permanent place now, in the world’s financial landscape.

Reserve Bank records show that we last saw parity between the $A and the $US in June 1982.

Twenty years later, in June 1982, the $A was worth just 50US cents.

Peter Costello, who was then Treasurer, made the best of it by calling the $A “super-competitive.”

The then weak $A did, undoubtedly, boost Australia’s exports at that time.

But, for most Australians, it meant holidays at home.

Australia’s interest rates are already some 5 per cent above those now available in  the United States.

And the US Fed chief, Ben Bernanke, is again talking of cutting US rates, even though America, too, is already facing new challenges from rising inflation.

That has implications for Australia.

One is that hot money might, once again, flood into this country.

Especially as major commodity prices, like those of iron ore and coal are already at record levels.

A flood of hot money, attracted by Australia’s high interest rates,  would only add to this country’s already high inflationary pressures.

But don’t tell the Reserve Bank board. It has enough to worry about already.

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