RBA frets over a resurgent currency

sydney — Australia’s central bank is fretting that a resurgent currency could unsettle the economy’s shift toward services-driven export growth.

Reserve Bank of Australia Governor Glenn Stevens left interest rates at two per cent on Tuesday and said a rebounding Aussie could ‘complicate’ an economic adjustment that’s under way. Policy makers are trying to gauge if record jobs creation late last year is holding up and reaffirmed they’re prepared to lower rates if needed to support demand.

“It is now quite clear that the RBA is close to acting on its easing bias,” said James McIntyre, head of economic research at Macquarie Group in Sydney. “The higher Australian dollar has dragged the RBA closer to cutting rates. However, the RBA’s statement makes it clear that a cut will ultimately be driven by the labour market and inflation outcomes.”

The renewed currency conundrum reflects the Federal Reserve’s caution on the speed of its policy tightening, a shift to negative rates in other economies and a jump in iron ore, Australia’s biggest export.

The Aussie dollar edged higher after the decision, before retreating to 75.74 US cents at 6:13pm in Sydney compared with 75.91 prior to the release. It was the best performer among the group of 10 major currencies in March, soaring more than seven per cent.

Since the RBA’s last meeting on March 1, data showed economic growth accelerated to three per cent in the last quarter of 2015.