The clues are coming thick and fast today that senior economic officials in Australia are worried about the impact of the high dollar on the economy over the short and medium term.
Hot on the heels of this morning’s warning from RBA Governor Stevens that the Aussie dollar was high by historical standards and ” that investors are under-estimating the likelihood of a significant fall in the Australian dollar at some point” comes an economic warning from Senior Treasury Official Dr David Gruen.
Gruen is the executive director of the federal government’s Macroeconomics Group which “advises the Government on a wide range of matters relating to the performance of the Australian economy.”
While his speech was ostensibly a wrap of of the transition so far from the mining investment boom to more balanced domestic growth in which he concluded “so far so good”.
Gruen laid the cause of the Aussie dollar strength at the feet of offshore investors together with – more importantly – the world’s central bankers. He said that the Aussie was high because:
…of the unconventional monetary policies being undertaken in much of the advanced world, where policy interest rates are up against the zero lower bound and expected to remain so for some time yet.
That’s an economic problem because Gruen also highlighted that in order to generate “stronger demand for the goods and services produced by the non-resource sectors of the economy, including non-resource export sectors” the Aussie dollar needs a “further significant depreciation of the currency.”
The flipside is of course that if the dollar doesn’t fall interest rates will have to.
Disclaimer: Greg McKenna has a small short position in AUDUSD taken after yesterday’s trade data.