''The Australian dollar is more clearly in a bear market,'' RBS senior currency strategist Greg Gibbs said in a note today. ''[It's] reflecting the evidence that Australia's resources investment cycle is in decline, a sense that the restructuring [and] reform process in China is likely to see a steady decline in its growth over the medium-term and its reforms increase risk of a significant disruption to growth.'' China is Australia's largest trading partner and its push to transition away from investment-led growth is seen as having a negative impact on the local economy. The RBA's attempts to talk down the dollar over the past month, which cumulated in governor Glenn Stevens raising the possibility of intervening in foreign exchange markets last week, also weighed on the currency. Jawboning, a verbal form of pressure to talk up or down something, is not unique to the RBA and has been also used by other central bank officials.

The Reserve Bank officially acknowledged intervening in foreign exchange markets in 2007 and 2008 during the financial crisis. In 2008, the central bank bought $3.7 billion and in 2007, it bought $300 million, Barclays chief economist Kieran Davies said. ''This intervention was an attempt to calm disorderly markets, where the bank was trying to ensure the depreciation of the exchange rate at the time was orderly, without 'excessive price gapping','' Mr Davies said. In late 2008, the Australian dollar lost 40 per cent of its value against its US counterpart. Unofficially, the RBA is believed to have intervened in foreign exchange markets in 2012, when it accepted an estimated $1 billion deposit from another central bank, Mr Davies said. Mr Stevens has been at pains to stress the Reserve Bank has not undertaken large-scale interventions. But it may have carried out small-scale interventions such as when it sold $300 million last month, although the sale could have been characterised as part of its moves to rebuild its reserves, Mr Davies added.

A key factor for the Reserve Bank when it considers any large-scale interventions is the prospects for success, especially for a central bank with a reputation for good management, Westpac senior currency strategist Sean Callow said. “The [Bank of Japan's] experience is not one that the rest of the world envies, where they intervened many times and frequently, it was just embarrassing what happened,” Mr Callow said. "They were just a blip on a chart when you look at them." Given the size of today's foreign exchange markets, analysts said any interventions could fail to change the value of a currency in a sustainable way. In February, New Zealand's finance minister Bill English said he would not risk using the country's limited funds to lower the dollar through intervention.

''We just don't want to take that kind of risks. We are a small country,'' Mr English said. ''We'll be out in the war zone with a peashooter.'' Research on previous central bank interventions in currency markets paint a mixed picture on the likelihood of success, Mr Davies said, with suggestions that interventions ''has at best a very short-term effect on the exchange rate''. The RBA's own analysis found that the impact was hard to pin down, could be short-lived and was sometimes counter-intuitive, Mr Davies added. Loading "For example, the RBA found that selling $1 billion was actually associated with a 0.7 per cent appreciation of the exchange rate the next day,” he said.

"However, intervening over more than one day had the desired effect, with a $1 billion sale lowering the exchange rate by 0.5 per cent."