RBA Governor Glenn Stevens has restated his preference for a lower AUD, suggesting that this week’s four-month high could be unsustainable given Australia’s costs and productivity levels.
Stevens was asked to comment on the recent rise of the AUD – and when it would warrant a response – following a prepared speech to the Australian British Chamber of Commerce in Sydney this afternoon.
Here’s what he said:
I’m tempted to say that if it warrants a response, we’ll do it and then tell you why, but to try to be more constructive, I think the direction is not entirely surprising.
The Fed was expected to taper and then it didn’t, and I think most people seem now to expect that while it will happen, it won’t happen for a little while yet, so we’ve had some reversal of the earlier decline in our exchange rate.
It should be added, as well, that we’ve had more positive data from China, I think, than some people expected and that’s probably another thing that gives it a bit of a bid.
That said, I personally would continue to think that a lower currency than this would be helpful in rebalancing the growth sources of the economy. I would prefer it to be lower than this rather than higher.
Whether it’s in my gift to make that happen is a separate question but fundamentally, I don’t think you could really, credibly say that the level of cost and productivity in Australia just on that metric – and that’s not the only metric – but on that metric, I don’t think that those things would point you to the present or higher levels being really sustainable.
The AUD is currently trading at about $US0.96, after the RBA made three cuts to bring the cash rate to a historic low.
The RBA has uploaded a recording of Steven’s speech and the subsequent Q&A session here.