The Aussie dollar’s recent rise has confounded many pundits and commentators, including the Reserve Bank. But RBA board member and former HSBC Australia chief economist John Edwards told the AFR that it could be the surge in volumes of exports, and the related income, which could be behind the recent strength.
It is a view first aired by CBA chief economist Michael Blythe who wrote some months back that Australia was on track to transition from a trade deficit nation to a trade surplus nation with the resulting upward pressure on the Aussie dollar.
The AFR reports:
“The currency argument is that a fall in the terms of trade should see lower exports and therefore less demand for the Australian dollar,” Dr Edwards said. “It’s not working out like that. In fact US dollar revenues have increased [for local mining companies].”
“And the balance of trade has for several months been positive, once again. And that means, in terms of what happens in foreign exchange markets, you wouldn’t necessarily expect to see a weaker dollar if it’s associated with, effectively, a boom in exports.”
Acknowledging that it could be a losing battle to try to “jawbone” (talk down) the Aussie dollar, Edwards said: “It’s very difficult to expect rhetoric to have an impact on economic forces which are running in the opposite direction.If you’ve got a mood going on in the currency, then rhetoric alone is not going change it.”
Indeed it’s not, which is likely why RBA governor Stevens has not taken the opportunity to do so in recent speeches and risk his and the RBA’s credibility if the jawboning failed.
Currency markets are never easy.
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