Australian Dollar drops against the US Dollar

Friday 22 November 2013

Article by Mozo

The Australian dollar has dipped below 92 US cents for the fist time in two and half months after RBA governor Glenn Stevens said he was considering intervention to lower the exchange rate.

Australian Dollar drops against the US Dollar
In early morning trading this morning, the Australian dollar fell to 91.99US cents, its weakest level since September 9.

This shift directly followed a speech given by RBA governor Glenn Stevens last night who reiterated his belief that high local currency is not helping the Australian economy. As part of his speech he also said he would not rule out selling Australian dollars to buy foreign currency in order to deliberately weaken the exchange rate.

BK Asset Management managing director Boris Schlossberg told the Daily Telegraph that the RBA governor has been frustrated that the stimulus policies of the bigger central banks have been keeping the Australian dollar unusually high.

"For the time being Mr Steven's remarks appear to be exploratory in nature as he tempered his rhetoric by noting that the intervention could carry significant costs and that he has not yet been convinced that it would be effective," Mr Schlossberg said.

"In short, Mr Steven's remarks served to put the currency market on notice that the RBA is serious about using unorthodox means to lower the exchange rate. The Aussie tumbled in response."

The Australian dollar is down around 11 per cent against the US dollar since the end of April but remains well above the level necessary to make a smooth transition from dependance on the mining sector to a non-mining economy. In a recent report the International Monetary Fund said that the Australian dollar was overvalued by around 10 per cent - which points to an implied level of around 85 US cents.

For those hoping to travel to the US in the months ahead, locking in a competitive exchange rate with a prepaid travel card is a smart way to make sure the cost of your holiday won't fluctuate if the RBA decide to actively pursue a lower target. 

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