Runaway dollar danger
THE Reserve Bank may have to bolster efforts to jawbone – or talk down – the tearaway Australian dollar, experts say, with the currency threatening to disrupt the nation’s fragile economic recovery.
The Aussie rocketed through US78c at the weekend to reach a two-year high of US78.36c after flat June-quarter inflation figures in the US turned traders away from the greenback.
It largely held that ground yesterday – fetching US78.13c late in the day – after quarterly economic growth figures from Australia’s top trading partner, China, surpassed expectations.
China’s gross domestic product growth climbed at an annualised rate of 6.9 per cent in the three months to June, well ahead of its official yearend target of 6.5 per cent as shoppers stepped up to the plate despite a crackdown on excessive debt levels.
Retail sales were up 11 per cent in year-on-year terms, while industrial output was 7.6 per cent higher.
A higher Australian dollar, which erodes the competitive advantage of Australian exporters over their offshore rivals, puts the RBA in a bind. With house prices starting to moderate, the RBA would be unwilling to risk another interest rate cut for fear of reigniting the east coast property boom, analysts say.
Equally, it is unlikely to entertain interest rate hikes while inflation and wage growth remain muted.
Westpac chief currency strategist Robert Rennie said the RBA’s commentary on the dollar – starting with minutes due today from the July 4 monetary policy meeting – would be keenly watched for any subtle changes in tone.
So far this year, RBA governor Philip Lowe has stuck by his mantra that an “appreciating exchange rate would complicate” the economic transition from the mining in- vestment boom, and steadfastly refused to adopt a more strident approach.
“It’s been a very well-used and understood stance (but) at a range of about US78-79c, we’re getting to the levels that could complicate things,” Mr Rennie said. “I’d be watching very carefully the RBA’s policy statements for any shifts.”
RBA deputy governor Guy Debelle will speak at an economics forum in Adelaide on Friday, while Dr Lowe will address the Anika Foundation lunch in Sydney next week – a fireside-style event noted for its candid and wide-ranging commentary.
Michelle Bullock, the RBA’s assistant governor for the financial system, is also talking this week, at an economic conference in Melbourne on Friday.
Mr Rennie said various factors could keep the Aussie elevated in the short-term, with pressure mounting on the US Federal Reserve to keep America’s cash rate on hold amid mixed economic signals.