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Aussie dollar hits four-year lows on RBA deputy governor comments

FXStreet (London) - The Australian dollar has fallen after Reserve Bank of Australia deputy governor Philip Lowe suggested that the RBA could be more active in its targeting of the exchange rate

In an address to the Australian Business Economists Annual Dinner, Lowe said that “one of the challenges that lies ahead is to create the environment that encourages the investment in human capital that is ultimately required to sustain the high living standards and high returns to savers that we should be aspiring to.”

Lowe added that “it is important to recognise that the exchange rate, wages and the return to saving each also play a key role in how the economy is performing at any point in time.”

-“In terms of the exchange rate, the RBA has been saying for a while now that a lower value of the Australian dollar would be helpful from an overall macroeconomic perspective.”

- “If the exchange rate is to play its important stabilising role, it needs to go down when the terms of trade and investment are declining, just as it went up when the terms of trade and investment were rising. To date, as we expected, we have seen some adjustment, but if our assessment of the fundamentals is correct we would expect to see more in time.”

- “In terms of wages, there is sometimes commentary bemoaning their high level in Australia. There are, no doubt, certain areas where wages are very high and working conditions are highly favourable and some adjustment is likely to be required. But it is also useful to recall that over the past two decades or so, aggregate wage outcomes have been consistent with the inflation target and with a trend decline in the unemployment rate.

- “While we need to pay close attention to overall labour costs, these observations point to the conclusion that concerns about the overall level of wages in Australia are, to some extent, really concerns about the exchange rate, with the high exchange rate leading to high wages expressed in foreign currency terms. A lower exchange rate would obviously make a difference to these comparisons.”

AUD/USD falls to July 2010 lows

The comments by the RBA deputy governor helped push AUD/USD to a four-year low, The pair is currently trading at USD0.8541, down 0.89 percent on the session after hitting lows at 0.8523.

AUD 2-year interest rate swaps are currently pricing at 2.7950 percent, down 0.18 percent after earlier highs at 2.8015.

Spain 9-Month Letras auction declined to 0.296% from previous 0.359%

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