RBA rebuffs US Treasury on Aussie jawboning

CANBERRA / Bloomberg

Australia’s central bank chief brushed aside US criticism of his comments on the local currency’s level, saying that it was probably too high and pointing to a record of overseeing a floating exchange rate.
Reserve Bank of Australia (RBA) Governor Glenn Stevens said in response to a question after a speech in Sydney that there’s “some risk” the currency, which has rebounded five US cents in about as many weeks, “might be getting a bit ahead of itself.”
The comment served as a rebuff to a US Treasury release on Monday that contained criticism of Australian officials’ remarks.
The US representative office at the International Monetary Fund (IMF) in September “expressed concern” over Australian authorities’ public statements “on the desired direction of the exchange rate,” according to the release.
Stevens last year said that “further depreciation seems both likely and necessary” in Australia’s currency, and RBA statements made repeated references to the exchange rate.
On Tuesday, he said “We run normal monetary policy, our exchange rate floats, we haven’t done a dollar of intervention in this whole episode,” referring to a period when the currency surged to $1.10 in 2011 and was then slow in tracking lower as commodity prices plunged.
“Occasionally we have an opinion about a market price, which is not that unknown in central banking circles,” he pointed out.
Asked about how market-determined exchange rates square with some nations pursuing zero interest-rate policies, Stevens said “that’s a question you could pose to those countries that have zero rates.”
The RBA, which has a record-low cash rate of 2 percent, down from a peak of 4.75 percent during a mining investment boom driven by Chinese resource demand, has said the local dollar needs to be lower to help rebalance the economy away from mining and toward services including tourism and education.
Central bank officials have cited strong demand for the higher yields offered by Australia’s government bonds — as peers in Japan, Europe and the US kept interest rates at or near zero and carried out large-scale asset purchases — as a driver of the Aussie’s resilience.
The local dollar traded at 76.05 US cents at 6:44 pm Sydney time on Tuesday. It has climbed more than 6 percent this month and 11 percent from a near seven-year low reached in January.
Asked whether making observations about whether the Aussie is undervalued or overvalued is consistent with a commitment to a freely floating exchange rate, Stevens was brief in his response: ‘Yes’
RBA came into being on 14 January 1960 as Australia’s central bank and banknote issuing authority, when the Reserve Bank Act 1959 (23 April 1959) removed the central banking functions from the Commonwealth Bank.
The bank has the responsibility of providing services to the Government of Australia in addition to also providing services to other central banks and official institutions.