The best way to beat Australian dollars?
Take it easy, said the Reserve Bank’s deputy governor, Brett Stevens.
Read moreThe Reserve Bank has been warning about the risks of a possible Australian dollar collapse for some time, with its last report saying the country could experience a “severe deterioration” of the exchange rate by the end of this year if it doesn’t take “appropriate actions”.
The RBA has warned that a sharp fall in the AUDJPY could hit the budget, pushing inflation up to 20 per cent or more.
The report said a sharp decline in the Australian exchange rate would have serious implications for the economy and “would create significant risks to the global financial system”.
But the RBA’s deputy Governor, Brett Steven, said it was important to remember that the RAB’s own forecasts showed a decline in inflation would be unlikely to trigger an immediate financial crisis, meaning the RBR’s latest warning is “misleading”.
“The RBC forecasts do not forecast a sustained decline in AUDJPX, but rather a gradual decrease in AUDJX from the current levels,” Mr Stevens said.
“That means a gradual increase in the RUBP over the longer term, but that is only a part of the picture.”
He added that while there was a risk that a decline could trigger an Australian dollar crisis, it was not “a certainty” that would happen.
He said there was “no basis” for Australia to consider a US dollar exit from the global trading system as a “real possibility” at this time.
In a statement to the ABC, the RBS said it expected a “sharp drop in the US dollar” from its current levels “by the end and may not be in the short term”.
“The US dollar is not considered to be an international reserve currency, and the Reserve Banks ability to influence the US exchange rate is limited, so it is not clear that any US withdrawal from the US financial system would be an immediate threat,” the bank said.
But the Bank of Canada said that a US exit from a global currency market would not be “the only potential consequence of a sharp depreciation in the dollar”.
And the Bank noted that the AUDJY was trading at about 85 per cent of its previous level, which it called “extremely volatile”.
It said the “dramatic drop in AUDUSD” was not likely to happen until after the RBC’s forecast.
Mr Stevens said he was “surprised” the RBNZ had not warned the RB about the AUDUSD market collapse earlier.
But he acknowledged that the bank had “made a number of comments” in the past about the possibility of a sudden change in the exchange rates of other currencies, such as the euro.
While the RSB said the RNZN was the most likely currency to be impacted, it said the NZD would also “probably” be hit by the AUD drop, although the Bank had not yet ruled out the possibility.
Despite the RBO’s warning, the US currency is expected to remain the strongest performer, and its official value is about $1.8 trillion higher than it was a month ago.
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