“Our position has long been, and remains, that foreign exchange intervention can – judiciously used in the right circumstances – be effective and useful.”: RBA Governor Glenn Stevens. Photo: Louise Kennerley
The Australian dollar fell to a two-and-a-half-month low after the head of the Reserve Bank said he has an open mind on intervening to get the currency lower.
In early-morning trade, the Australian dollar fell as low as 91.99 US cents, its weakest level since September 9. At 0720 AEDT, the local unit was trading at 92.23 US cents, down from 93.04 cents on Thursday.
In a speech in Sydney on Thursday night RBA governor Glenn Stevens again said the high exchange rate is not helping the economy. He did not rule out selling Australian dollars to buy foreign currency in order to weaken the exchange rate.
“In this episode so far, the bank has not been convinced that large-scale intervention clearly passed the test of effectiveness versus cost,” Mr Stevens said.
”But that doesn’t mean we will always eschew intervention. In fact we remain open-minded on the issue.
“Our position has long been, and remains, that foreign exchange intervention can – judiciously used in the right circumstances – be effective and useful.
”It can’t make up for weaknesses in other policy areas, and to be effective it has to reinforce fundamentals, not work against them. Subject to those conditions, it remains part of the tool kit.”
It’s “an important declaration”, said Sally Auld, an interest-rate strategist at JPMorgan.
The speech “suggests markets should probably give further consideration to the set of conditions that might push the RBA to reach deeper into its toolbox”.
The Reserve Bank of Australia “could be leaning” against the Aussie already, Gareth Berry, a currency strategist at UBS, wrote in a note to clients yesterday, citing central bank foreign exchange transactions for October. They showed the bank had sold a net $ 330 million worth of Australian dollars, “highly unusual” and the biggest unbalance in over four years, Berry said.
“This latest evidence now suggests that the RBA’s patience may be running out, and that the central bank may have finally begun to lean against the wind – albeit very gently,” Berry wrote in the note, which was sent before Stevens’ speech.
The governor has said in recent months that the currency remains high and sought to exert pressure on it by maintaining an easing bias, even as evidence mounts that record-low interest rates are stimulating housing and consumer sentiment. The Australian dollar is the best performing group of 10 currency after New Zealand’s since August 30, spurred by the Federal Reserve’s decision to postpone unwinding bond purchases and better economic readings from China.
Australia’s currency is about 10 per cent overvalued, the International Monetary Fund said in a preliminary statement after reviewing the nation’s economy.
Bloomberg and AAP