Economy can cope with lower dollar: Hockey

Treasurer Joe Hockey says Australia can cope with a falling Australian dollar, despite it hitting a fresh five and a half year low.

Mr Hockey noted that since the currency was floated on the foreign exchange market it has been over 100 cents against the US dollar and below 50 US cents.

"Australia's flexible economy can cope with that sort of volatility," Mr Hockey told reporters in Sydney on Friday.

However, he refused to speculate where the currency would head from here.

The currency is currently trading at around 77.7 cents.

He said the market was factoring in further cuts in interest rates but that was a matter for the Reserve Bank.

The central bank will hold its first meeting of the year on Tuesday.