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A Higher Australian Dollar Poses No Problems for Exporters, Says Treasurer

australian-treasury

Australian Treasurer Scott Morrison expressed no discomfort with the current valuation of the Australian dollar this weekend.

In an interview with Bloomberg TV, Morrison said that Australian exporters had adapted to a currency that was now 9.3% higher against the US dollar ($0.7873) and nearly 4% higher against the Chinese yuan (¥ 5.1954) than it had been at the start of the year – the dollar and yuan being the currencies of Australia’s two largest trading partners.

Morrison went on to praise the Reserve Bank of Australia for its “slow and patient” approach to monetary policy and said that the bank “has been making the right call on…[interest] rates.”

Unlike the US Federal Reserve, Bank of Canada, Bank of England and, to some extent, the European Central Bank, the RBA has so far refrained from signalling tighter monetary policy ahead. The Australian dollar has, however, been extremely resilient in the face of the RBA’s reluctance. The aforementioned year-to-date gains against the US dollar and yuan are matched with a 1.7% gain against the Canadian dollar (C$0.9836) and a 1.5% gain against sterling (£0.5918), and a depreciation of only 2.5% against the euro (€0.6675).

Current Australian interest rates, which have been held at a record low of 1.5% since August 2016, provide the Australian economy with a “good growth story,” says Morrison.

Although complimentary of the RBA, Morrison’s view does differ slightly from that of the bank, which in recent months has been suggestive within its monetary policy statements that it would like to see the Australian dollar weaken.

“The higher [AUD] exchange rate is expected to contribute to subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast,” said the RBA at each of its last three meetings.

The RBA would certainly be deeply unhappy with an AUD/USD rate at $0.9, but that’s what it’s facing at the end of 2018 according to ABN Amro. The Dutch bank expressed “strong conviction” on its forecast last month – a forecast that equates to a 14% rise in AUD/USD from exchange rates on Monday. ABN said that a rally in the pair will be driven by broad US dollar weakness, strength in commodities markets and eventual RBA interest rate hikes.

 

A Discouraging Start to the Week

The Australian dollar fell on Monday despite commodities picking up steam.

Oil’s climb back above $52 per barrel and copper peering over $3.20 per pound for the first time since 2014 would ordinarily have sent the commodities-sensitive Australian currency higher, not to mention iron ore’s stability above $60 per ton. The “Aussie” sank broadly however, albeit marginally, ahead of Tuesday’s release of the latest RBA meeting minutes. Declines of between 0.1% and 0.35% against five of the other seven majors (excluding the Canadian dollar and Swiss franc) were matched with similar declines against prominent Asian currencies, including the yuan, rupee and Singapore dollar.

 

Joel Wright Author: Joel Wright

Joel has been involved in the markets for the past 10 years. During that time he’s worked in market analysis teams in London, in the financial technology sector in Singapore – working mostly with automated trading tools and algorithms – and most recently he’s been planning FX risk hedging for an SME in Bangkok. Joel has a first-class honours degree in Financial Services and currently writes about foreign exchange for several global businesses.

You can get in touch with Joel via email here or via the contact page.
Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product. Full Disclaimer

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