Here's Why Glenn Stevens Could Be Wrong In Wanting A Lower AUD

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It is a truth universally acknowledged that a lower Aussie dollar is better for the Australian economy – well, that’s if you believe the RBA, its governor Glenn Stevens, conventional wisdom, and the bloke down the pub who was telling me about how the strong Aussie was killing his business last week.

The basic tenet is that a lower Australian dollar will help “balance out” growth in the economy, lower import costs and make Aussie exports more attractive internationally.

But in a fascinating interview with the AFR today, Colonial First State economist James White disagrees.

“I don’t see why the RBA wants to see the global purchasing power of Australians reduced by 20 per cent in exchange for one percentage point of extra growth,” White told the AFR.

His point is a good one because he notes that international investors and currency traders are too smart to believe that the AUD will remain weak in the long term.

“They (investors, companies and traders) believe a return to growth will induce tightening and a stronger currency, so they don’t invest long term to capture the benefits of a weaker currency,” he said.

It’s a compelling argument and one we discussed last week here at Business Insider.

The Tankan in Japan today printed at a 6-year high and the US economy looks like it is finally reaching escape velocity from the recession so the chances are growing that White’s got the right idea.

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