Tuesday , September 29 2020

RBA sees Aussie dollar fairly valued, would prefer it lower

Bloomberg

Australia’s central bank said the appreciation of the currency was consistent with higher commodity prices — particularly iron ore — while providing no indication that additional monetary measures are imminent.
“While members noted that the Australian dollar was broadly aligned with its fundamental determinants, a lower exchange rate would provide more assistance to the Australian economy in its recovery,” the Reserve Bank of Australia (RBA) said in minutes of its September meeting in Sydney on Tuesday.
The currency advanced after the release as the central bank reiterated that it would “continue to consider how further monetary measures could support the recovery” without suggesting it was poised to do so. The Australian dollar traded at 73.04 US cents at 11:57 am in Sydney from 72.73 cents just prior to the release.
The RBA this month announced an expansion of its lending facility for banks and signalled a renewed willingness to explore additional measures to support the economy. Gross domestic product (GDP) contracted by the most on record last quarter, officially pushing Australia into its first recession in almost three decades.
The Australian dollar has soared more than 27% from a low on March 19, the day the central bank announced emergency measures that included cutting the benchmark interest rate to 0.25% and setting a target for the three-year yield on government bonds at the same rate.
Under the RBA’s increased Term Funding Facility, banks will have access to additional funding equivalent to 2% of their outstanding credit, at a fixed rate of 25 basis points for three years. Banks will be able to draw on this up until the end of June 2021. The change brings the total available to around A$200 billion ($145.5 billion).
One by-product from increasing the facility is that should banks find firms aren’t willing to take out loans — possible with the economy in recession — they can use the funding to buy government bonds.
The RBA is coordinating with the government’s stimulus program by purchasing bonds to keep borrowing costs down across the economy. The central bank has bought over A$63 billion of government securities since it initiated the bond-buying program.
“Public sector balance sheets in Australia were assessed as being strong,” the RBA said. “In an environment of record low borrowing rates and significant spare capacity in the economy, this meant fiscal policy was well placed to continue to
support the recovery.”
Both the government and central bank are focused on bringing down unemployment that probably rose to 7.7% in August, economists predicted ahead of data on Thursday. The RBA expects the jobless rate will reach 10% by year’s end.

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