The Aussie dollar continues to confound its critics and the Reserve Bank governor and is this morning trading at 0.9356 – its highest level since November 2013 .
This strength is a potential problem for the Australian economy in the transition away from the mining investment boom as a falling Aussie, which is consistent with where commodity prices and Australia’s terms of trade have gone over the past year, is needed to spread the benefits of economic growth across the economy as a whole and give exporters and import-competing industry a leg-up.
But while the Aussie has clearly been supported recently from offshore investors, last night’s move seems more about the US dollar which was sold heavily against the pound, euro and particularly the yen and Singapore dollar. The other members of the dollar bloc, the Kiwi and Canadian dollars, also gained solid ground overnight and over the past week in the case of the Canadian dollar.
It’s a dollar move reminiscent of the types seen when the Fed first started down the quantitative easing path and it’s a move that will be worrying the Reserve Bank which continues to remind the market that the Aussie is high by historical standards.
The problem, of course, is if it is a US dollar move then there is little Glenn Stevens or his colleagues can do about the Aussie dollar’s strength.