After the initial success in 2013 of talking the Aussie dollar down, which culminated in a move below 87 cents early this year, RBA Governor Stevens has continued to show his disquiet over currency strength that defies the fall in the terms of trade.
His efforts to talk the Aussie down – jawboning as it’s called – is falling on deaf ears according to BT Investment Management head of income and fixed interest Vimal Gor, because foreign investors just can’t get enough of Australian assets.
Governor Stevens is up against strong opponents in the currency wars and those opponents won’t be swayed by some petty collapse in the iron ore price. What they are interested in are interest rates and Australia’s relative safety as a destination for capital.
Fixed income investors, particularly from the US and Japan, have created a tsunami of money heading towards our shores against which Stevens is largely powerless – short of a direct intervention to hack the dollar lower. Our AAA credit rating, relatively high interest rates and benign economic growth position has made us a favourite destination for Japanese and American carry traders.
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