Strong dollar could encourage interest rate cuts

The Reserve Bank of Australia (RBA) could cut interest rates further in order to maintain the growth that has seen the Aussie dollar strengthen considerably.

This is the view of Shane Oliver – head of investment strategy at AMP Capital Investors – who told the Sydney Morning Herald that Australia's currency is holding up surprisingly well in the face of global economic turmoil.

He stated that the dollar has traditionally fallen away sharply during times of international uncertainty and subdued market activity, but this is not the case at the moment.

Mr Oliver added that when the recession took hold in 2008, the dollar fell by nearly 40 per cent against the American equivalent.

"The longer the Aussie dollar holds up or remains strong, the less there will be in terms of inflation pressure and therefore the greater the scope for the Reserve Bank to cut," he was quoted as saying.

New unemployment figures released by the Australian Bureau of Statistics showed that a growing number of Aussies were out of work in December 2011, which could also influence any decision to make cuts to interest rates.

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