Chungwoo: Australia Intervened in Forex Markets

According to recently-released documents, the Central Bank of Australia intervened on behalf of its currency in August, marking the first such intervention in over six years. Surprisingly, its purpose in intervening was to lift up its currency, rather than hold it down, which is the reason most central banks intervene. Apparently, the global credit crunch that flared up over the summer, generated tremendous volatility in forex markets. As a result, many carry traders- for whom volatility is anathema- quickly unwound long positions in the high-yielding currencies Australia and New Zealand, causing them to plummet. However, both currencies have since resumed their appreciation, which means any future intervention will likely be aimed at holding the Australian Dollar down. Bloomberg News reports:The Australian dollar underwent %26quot;a particularly sharp depreciation in mid-August as the increase in global risk aversion arising from the credit-market crunch triggered an unwinding of carry trades.%26quot;Read More: Australian Central Bank Bought Currency to Ease Market Turmoil