Save Europe to lower the Aussie

While various sections of Australian industry continue to blame the resources boom for their problems, the strength of our dollar has moved well beyond the impact of commodities prices.

As the aphorism states, no good deed goes unpunished. Australia's overall solid economy and low government debt as much as the resources boom are keeping the Aussie high. Oh, there's also the little matter of pretty much the rest of the developed world being rubbish.

I've been suggesting in various places for some time now that the Super Aussie has moved well beyond being considered a "risky" commodities bet and joined the likes of Switzerland in attaining safe haven status. (And for the pedants who want to claim that "safe haven" is tautology, that a haven is by definition safe, get over it - "safe haven" is part of the language.)

As usual, the general market commentary has been slow to accept the change. The reality of the massive fiscal problems facing the US and Europe have been there for all to see but only now is it starting to sink in that investing in Australia and the Aussie is closer to a "risk off" than a "risk on" proposition.

The whole concept of "risk" is of course relative. The way that money rushed into US government bonds during the wilder moments of the crisis struck me as a sure losing bet - a government printing large amounts of money is sure to lower the value of that money, never mind being paid an interest rate close to zero and, sometimes, worse.

Various central governments realised that and became keen buyers of Australian government bonds last year, a path since followed by private institutions. Various Reserve Bank minutes last year mentioned the central government appetite for Commonwealth bonds and the February meeting's minutes released on Tuesday underlined the impact on the currency:

"More generally, the Australian dollar had appreciated against most other currencies in recent weeks and approached the multi-year peaks reached in 2011. This occurred notwithstanding the fact that commodity prices and the terms of trade were off their highs, with purchases of Australian sovereign debt by overseas buyers an important influence on the exchange rate."

There's plenty of market commentary about the "carry trade" - the ability of players to borrow at very little cost in, say, Japan, and pick up much richer rates in Australia, either wearing the foreign exchange risk or the cost of hedging it - but the safe haven status is moving us beyond that game.

There's no carry trade into Switzerland - they've even tried negative interest rates to discourage hot money - but the Swiss franc is very strong simply because the Swiss economy is rated as safe.

We have the same sort of "problem". It's a problem for exporters and those competing with imports, but it's a positive in the sense that it makes Australians wealthier: we can buy more stuff with fewer of our dollars.

With Australia riding the super cycle of Asia's urbanisation and industrialisation and with both sides of politics obsessed with budget surpluses, we're likely to remain "safe" for a long time to come.

(And spare me the stuff about China being a bubble that's about to explode and end capitalism - China will have its booms and busts, just like everyone else, but that massive fundamental driver remains in place.)

So what's the cure for a currency that many believe is too strong? It's really not up to us - it's up to the rest of world to become less risky. If you want a weaker Aussie dollar, you have to have a stronger greenback and euro. And that's going to take some doing.

Yes, the Aussie is stronger for longer. Even the politicians accept that.