Advertisement

RBA Governor rejects Holden view of currency

Dec 13, 2013

Reserve Bank governor Glenn Stevens has bought into the debate raging about Holden’s decision to cease manufacturing in Australia, saying the car industry’s challenges are not just about the exchange rate.

US car giant General Motors cited the relatively high value of the Australian dollar as one component of a perfect storm that had made its local operations unsustainable.

Stevens said the exchange rate is not the only issue for local car makers.

“The Australian car industry has been in structural change for quite a long time, at many different exchange rates, including ones much lower than we presently see,” he told The Australian Financial Review on Friday.

It was going to be “a tall ask” for any manufacturer to share a small portion of what was a pretty small market if it was not part of some bigger global chain.

With a falling terms of trade, Mr Stevens expects the Aussie’s dollar’s natural level to be lower than its overnight rate of US89.40 cents.

“I thought [US]85 would be closer to the mark than [US]95 … but really, I don’t think we can be that precise.”

If things over the medium term evolve as the bank is assuming it would be surprising if “a nine at the front is the right number”.

The dollar is traded Friday at a three-and-a-half month low following strong US retail data and after Steven’s comment.

Early Friday, the local unit was trading at 89.37 US cents, its lowest level since August 30 and down from 90.31 cents on Thursday.

The comments, as well as strong US retail sales data, dragged the Aussie dollar lower overnight, ANZ senior manager FX in Auckland Sam Tuck said.

“The fact that the central bank governor saw fit to put a number on it has given the market a bit of a target to aim for,” Tuck said.

“His comments have just given the market a reason to doubt where it was and follow his lead.

“He has definitely got a lot of traction for this bit of verbal intervention, but the important thing is that it shows the weak side of the currency market. If the market wasn’t prepared to go that way or there was excess demand for the Australian dollar, he wouldn’t have been able to achieve that.

“The Stevens comments took us from around 90.60 US cents to around 89.80 cents and then the strong US retail sales numbers came out.

“The US is improving and that strength in the US economy is attracting inflows, people are looking to invest there.”

US retail sales rose 0.7 per cent last month, the biggest gain in five months, signalling growing confidence in the economy and adding to increased expectation that the US Federal Reserve could begin tapering its economic stimulus program next week.

Local News Matters
Advertisement
Copyright © 2024 InDaily.
All rights reserved.