Australia's Central Bank Says Its Currency Is Way Overvalued

aussie dollar


Australia’s central bank said their models and those used by the IMF showed in August estimates, that the Aussie dollar is four to 15 per cent overvalued, according to Bloomberg.In a separate December 14 document, the RBA also said its preferred model showed it was 7 per cent overvalued. 

The information was released in response to a Bloomberg Freedom of Information request (FOIA).

The Reserve Bank of Australia (RBA) also said equilibrium rate may fall 1 – 4 per cent in two years.

Here’s a look at how the AUD responded to the news it is down to the 1.02 level.:

AUD chart

Photo: Fin Viz

The AUD/USD has been trading in a 1.03 to 1.06 range since last November, and Societe Generale’s Carole Laulhere and Kenneth Broux say in a February 5 note, that the AUD’s valuation has been high compared to its 10-year average:

Australian dollar overvalued chart

Photo: Societe Generale

But for those thinking this could add to the currency wars, there’s reason to believe otherwise. 

The RBA said the situation in “Australia [is] not considered comparable to circumstances which led Switzerland to intervene on foreign-exchange market,” according to the document released to Bloomberg. It said the AUD doesn’t post a near-term risk of deflation nor is it “contractionary” for the economy.

Moreover, earlier this week, RBA Assistant Governor Guy Debelle spoke at the University of Adelaide, and said, the RBA could act to devalue its currency by buying foreign currency like the Swiss National Bank did, but it won’t unless there is a huge change in the Australian economy or in the value of the Aussie dollar, according to the Brisbane Times.

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