News Analysis: Central bank says Australian dollar still too strong
Last Updated: 2013-09-06 15:14 | Xinhua
 Save  Print   E-mail

The Reserve Bank of Australia ( RBA), the country's central bank, said although there are some undercurrents swirling around the Aussie dollar, such as the rapidly ballooning local housing market and diminishing overseas appetite for Australian assets, the Australian currency is still relatively strong.

In fact, citing improving global data, the RBA in its board meeting on Tuesday had decided to leave the cash rate unchanged at 2.5 percent.

A critical take-away from Tuesday's meeting was that the central bank wants Australia's exchange rate to do even more of its heavy lifting given a still sub-trend economy.

Hence, one RBA board member, John Edwards, claimed last week that the Aussie dollar was "still a bit too strong to help... in the transition we need to make."

Governor Glenn Stevens chimed in with the assessment that the currency "remains at a high level" and that further falls could even "help to foster a rebalancing of growth in the economy."

The greatest challenge to the dollar is consumer spending, which accounts for 60 percent of the economy. At face value, consumer spending remains quite weak despite recent improvements in consumer confidence and real estate prices.

Assuming business confidence remains subdued and the unemployment rate edges a bit higher in coming months, there is still a good chance that the RBA will cut interest rates again by year-end.

The decline in interest rates is breathing some life into the housing sector, though the upturn in real estate industry still remains modest.

The other challenge has been the poor position of the non- mining sectors to offset the gathering weakness in mining investment.

Indeed, last week's report of a downgrade to non-mining investment intentions added to the downside risks for the economy. One near-term hope has been that this Saturday's federal election might end political uncertainty and lead to improved business confidence.

One analyst said that the feeling of such uncertainty could not be avoided if the Liberal/National party coalition wins to form a government but then face an obstructionist Senate, leading to speculation over a double dissolution election.

That will also require the Australian dollar to not collapse badly, and the September quarter consumer price index report due later next month to confirm continued benign price pressures.A final dynamic at play is a global cringe for Aussie assets.

"Offshore investors now own close to 69.7 percent of all Australian commonwealth government bonds, which is down from the peak of 79 percent seen in the first quarter in 2012," Skye Masters, a strategist with National Australian Bank, said.

In high-end Sydney property market, three recent vendors of homes for 52.5 million AU dollars (47.8 million U.S. dollars), 33. 5 million AU dollars (30.5 million U.S. dollars), and 21 million AU dollars (19.1 million U.S. dollars) all sold their properties to Chinese buyers.

Of course, there are some positive signs on the horizon. The RBA noted that there are "reasonable prospects" for a pick-up in global growth next year with China's economy stabilizing while the outlook for the United States, Europe and Japan is also gradually improving.

It's important to bear in mind that any currency weakness is good news for the real economy, one analyst said.

Share to 
Related Articles:
Most Popular
Chinese | BIG5 | Deutsch
About | About the Economic Daily | Contact us
Copyright 2003-2015 China Economic Net. All right reserved