A senior RBA official has reiterated governor Glenn Stevens' comments that the central bank could intervene to drive the Australian dollar down.
Speaking at a productivity conference in Sydney, RBA deputy governor Dr Philip Lowe said intervention has always been an option.
"We don't rule intervention in or out, that has been a long-standing practice," Lowe said, adding the threshold for intervention is high.
The Australian dollar has fallen in recent weeks after some jawboning from the RBA, with the governor's comments sending it plunging last week when he raised the possibility of intervening in foreign exchange markets.
As well as his currency comments, Dr Lowe said Australian businesses need to boost efficiency to maintain growth in living standards and could use engineers freed up from mining construction to build more infrastructure.
"We can no longer depend on a rising terms of trade and favourable demographics to make us richer," Lowe said in the text of a speech to be delivered in Sydney. "If this lift in productivity growth does not take place, then we will need to adjust to some combination of slower growth in real wages, slower growth in profits, smaller gains in asset prices and slower growth in government revenues and services –- in short, slower growth in our average living standard."
Lowe's comments echo Treasury's top economic forecaster David Gruen, who said Australia should brace for the weakest income growth in half a century in the coming 10 years. Gruen said November 21 that to maintain recent income growth levels would require labor productivity growth to average 3.2 percent a year for a decade -- something never achieved before.
The Australian dollar has fallen to a fresh three-month low as declining commodity prices and a rally in the United States dollar puts the currency under pressure.
At 0700 AEDT, the local unit was trading at 90.77 US cents, down from 91.26 cents on Wednesday.
In overnight trade, it fell as low as 90.65 US cents, its weakest level since September 4.
Bank of New Zealand currency strategist Mike Jones said encouraging economic data from the US helped support the greenback.
New orders for durable goods in the US fell two per cent in October, which met market expectations, while weekly unemployment claims figures fell to a two-month low.
"The commodity currencies all suffered at the hands of the stronger US dollar," Mr Jones said from Wellington.
"After spending most of the night dribbling lower, the US dollar staged a noticeable rebound early this morning."
"This has taken the edge of most of the major currencies,
"Admittedly, price action has been somewhat lacklustre as volumes thin out ahead of Thursday's US Thanksgiving holiday."
The main focus for the market on Thursday will be the release of official business investment figures for the September quarter, which should give a clearer picture on the slowdown in mining investment in Australia.
Colonial First State economist James White is a lone voice. While there is almost universal agreement that the Australian economy needs the dollar to be driven down, White is warning that pursuit of depreciation will make households poorer, widen inequality and hurt the economy in the long run.
“I don’t see why the RBA wants to see the global purchasing power of Australians reduced by 20 per cent in exchange for one percentage point of extra growth,” Mr White told The Australian Financial Review.
The RBA has pinned its hoped on a falling Australian dollar currency boosting corporate activity in export dependant industries such as manufacturing education and tourism, but Mr White isn’t sure the broader economy will benefit.
He says companies will not regard the weaker currency as permanent and will therefore still be reluctant to invest.
Mr White says “targeted deprecation policy” amounts to “a transfer from households through imported inflation to firms through higher profitability,” pointing to rising food and fuel costs as a result of the weaker currency.
I've heard b_b argue this isn't inflation, as it's a one off cost that will not be reflected. But the effect of that one off cost does last for a considerable time. The UK is just starting to come out of the effects of the drop in the pound. Austerity was nothing compared to the pain the exchange rate induced inflation caused. This alone has kept house prices down for years, even with zero interest rates.
Beware the falling dollar. It is a doubled edged sword.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
A lower dollar does make us poorer in the short term – Being in the states at the moment I am very glad that the $AUS is not $US 0.50.
But the costs of a currency inflated by poor policy or the actions of others are very real.
Making the decision to stop hawking your assets and IOUs to foreign ‘Cash converters’ is not easy.
It takes time to generate ways of earning a living that do not involve eating your capital base.
The biggest problem in making the adjustment is that too many of our pollies and commentators are still pretending this is not the problem we need to address.
That stuff about we are a ‘services economy’ is merely a statement of what daft policies have produced.
The Australian dollar has fallen below 89 US cents for the first time in four months as expectations about an upcoming US Federal Reserve announcement continue to weigh on the currency.
At 0700 AEDT on Wednesday, the local unit was trading at 88.98 US cents, down from 89.51 cents on Tuesday. In the early hours of Wednesday morning, it dropped as low as 88.82 US cents, its weakest level since August 5.
The Federal Open Market Committee (FOMC) is expected to announce a tapering of the $US85 billion-a-month ($95.5 billion) bond buying program when its meeting finishes early on Thursday morning, Australian time.
BK Asset Management managing director Kathy Lien said the Australian dollar was coming under a lot of pressure because the Reserve Bank of Australia was still considering interest rate cuts, or loosening monetary policy, while the US central bank was considering tightening monetary policy.
‘‘The Aussie dollar is set to be one of the worst performers if the Fed tapers tomorrow,’’ she said from New York.
The Australian dollar has fallen below 89 US cents for the first time in four months as expectations about an upcoming US Federal Reserve announcement continue to weigh on the currency.
At 0700 AEDT on Wednesday, the local unit was trading at 88.98 US cents, down from 89.51 cents on Tuesday. In the early hours of Wednesday morning, it dropped as low as 88.82 US cents, its weakest level since August 5.
The Federal Open Market Committee (FOMC) is expected to announce a tapering of the $US85 billion-a-month ($95.5 billion) bond buying program when its meeting finishes early on Thursday morning, Australian time.
BK Asset Management managing director Kathy Lien said the Australian dollar was coming under a lot of pressure because the Reserve Bank of Australia was still considering interest rate cuts, or loosening monetary policy, while the US central bank was considering tightening monetary policy.
‘‘The Aussie dollar is set to be one of the worst performers if the Fed tapers tomorrow,’’ she said from New York.
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