Sunday, October 18, 2009

Australia's Strong Dollar Policy

Interesting article in The Australian about how the Australian central bank, the Reserve Bank of Australia (RBA), seems to have no problem with continued appreciation of the Australian dollar. The Australian dollar is already up more than 50% against the U.S. dollar since the October 2008 lows of US$0.61/A$, and up more than 30% since New Year's Eve level of US$0.70/A$, yet when asked what to do if the Aussie dollar continued to appreciate to for example US$1.10/A$, then RBA chairman Glenn Stevens simply said it would simply reflect the strength of the Australian economy and that the RBA would have no problem with it.

This can be contrasted with the explicit attempts by the Bank of England, the Bank of Canada and the Reserve Bank of New Zealand to "talk down" the values of the pound and the dollars of Canada and New Zealand.

While I continue to believe that further upside potential for the Aussie dollar is limited, the fact that the RBA seems happy about a strong Aussie dollar is certainly bullish for it.


Blogger Cripp said...

Could you please elaborate on your conclusions? Since the value of the AUD is relative, inflation in the USD would necessarily mean that the AUD strengthens in relative terms, notwithstanding that further rate hikes and à strenghtening Australian economy have been accounted for. Or do you for some reason believe that the USD will not drop in value? Since i'm not an economist, I'd be very interested in hearing your take on this. Thanks.

12:26 PM  

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