Insight: RBA Worried Further AUD Gains Would Hurt Economy, Jobs

• Published on
• 01 Sep 2020, 07:32 PM

By Sophia Rodrigues

The appreciation in the Australian dollar in recent months may be justified by fundamentals but its mention in the monetary policy decision statement Tuesday is a signal that further gains would worry the Reserve Bank.

In the statement, the RBA noted the US dollar has depreciated against most currencies over recent months. “Given this and higher commodity prices, the Australian dollar has appreciated, to be around its highest level in nearly two years,” it said.

It was the first time since early March the Australian dollar found a mention in RBA’s monetary policy decision statement. While the comment was a statement of fact, its inclusion is meant to signal the RBA is watching the exchange rate closely.

Last month, the RBA made several mentions of the exchange rate in the quarterly Statement on Monetary Policy. Those comments inadvertently gave boost to the Australian dollar because it said the level of the Australian dollar was broadly consistent with the terms of trade and interest differentials.

Further support for the currency came from the Federal Reserve’s monetary policy review which suggested interest rates would be lower for longer, prompting local economists to predict the Australian dollar would touch $0.80 by the end of the year.

However, the RBA is worried that further gains would hurt growth and jobs, and it would take longer for inflation to sustainably be within its 2% to 3% target band.

The Australia dollar is currently trading at $0.7360 after touching $0.7412 following the release of RBA statement.

--Contact: Sophia@centralbankintel.com