12-07-2014, 09:12 PM
RBA is trying to talk down the AUD - AGAIN
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Dollar could slump on US rate rise: RBA
The Australian
July 12, 2014
RESERVE Bank governor Glenn Stevens has warned investors to brace for a slump in the Australian dollar when the US Federal Reserve starts to lift interest rates and questioned whether ultra-loose monetary policy was fostering the right kind of risk-taking.
Mr Stevens also downplayed the idea that Australia had become a “safe haven” for investors in the wake of the global financial crisis, and suggested exceptionally low levels of financial volatility and favourable borrowing rates on corporate and sovereign debt were not sustainable.
“The likelihood of some disruption in markets is probably pretty high because it always is when the Fed eventually changes course,” Mr Stevens told The Weekend Australian , referring to the expected rise in US official interest rates once the Fed ceased quantitative easing — scheduled for completion in October.
“I think the atmosphere in international financial markets would be different in a world where the Fed is on a path, however gradually, to raise rates,” he added, noting that the US economy was improving and on track for tighter monetary policy.
“(Tapering) is not the same as actually starting to raise the cost of overnight money,” he said, while questioning whether Australia’s AAA credit rating and relatively sound banks and government finances had shock-proofed the currency.
“What safe haven normally means is, when there’s a sudden risk event, people run to the haven, (but) I’m not sure whether I’d be willing to say that we’re going to be the recipient of those kinds of flows in a major ‘risk-off’ event,” Mr Stevens said.
“That’s why we’ve said our sense is that some investors are maybe underestimating the probability of a material decline at some point, but I can’t say when this might be.”
The governor’s comments come amid concerns that US equity markets — the S&P 500 surged 20 per cent in the year to May — had reached record highs on the back of artificially low interest rates rather than economic fundamentals.
Full interview transcript
European markets also skidded this week on renewed concerns over its banks, most notably Portugal’s Banco Espirito Santo.
And despite a 25 per cent fall in the price of iron ore since the start of the year to below $US100 a tonne, the Australian dollar — which once closely tracked the prices of Australia’s biggest exports — has risen from about US90c to US94c.
Reserve Bank officials including the governor have repeatedly questioned the stubbornly high value of the currency, arguing that it was frustrating the economy’s transition away from resources.
“Maybe people are listening differently, that can happen, but I think we’ve had a fairly consistent story,” Mr Stevens said, batting away criticism that the RBA’s use of slightly different language to critique the currency had confused some investors.
Noting recent concerns of the Bank for International Settlements that ultra-loose monetary policy was promoting asset price bubbles and poor investment built on excessive risk-taking, Mr Stevens said the “jury was still out”.
In its June annual report, the BIS pointed to a tripling of high-yield corporate bond issuance to $US90 billion a quarter in 2013 compared to the pre-GFC era and an eerie slump in financial volatility to levels not seen since 2004.
Mr Stevens said: “We should be trying to form an assessment of how much is the risk-taking of the kind that we want by entrepreneurial business in the so-called real economy, a new product, a new factory, a new process, an innovation and by extension some employees as well.”
http://www.theaustralian.com.au/business...6986190263
________________________________________________________________________________________________________________
Dollar could slump on US rate rise: RBA
The Australian
July 12, 2014
RESERVE Bank governor Glenn Stevens has warned investors to brace for a slump in the Australian dollar when the US Federal Reserve starts to lift interest rates and questioned whether ultra-loose monetary policy was fostering the right kind of risk-taking.
Mr Stevens also downplayed the idea that Australia had become a “safe haven” for investors in the wake of the global financial crisis, and suggested exceptionally low levels of financial volatility and favourable borrowing rates on corporate and sovereign debt were not sustainable.
“The likelihood of some disruption in markets is probably pretty high because it always is when the Fed eventually changes course,” Mr Stevens told The Weekend Australian , referring to the expected rise in US official interest rates once the Fed ceased quantitative easing — scheduled for completion in October.
“I think the atmosphere in international financial markets would be different in a world where the Fed is on a path, however gradually, to raise rates,” he added, noting that the US economy was improving and on track for tighter monetary policy.
“(Tapering) is not the same as actually starting to raise the cost of overnight money,” he said, while questioning whether Australia’s AAA credit rating and relatively sound banks and government finances had shock-proofed the currency.
“What safe haven normally means is, when there’s a sudden risk event, people run to the haven, (but) I’m not sure whether I’d be willing to say that we’re going to be the recipient of those kinds of flows in a major ‘risk-off’ event,” Mr Stevens said.
“That’s why we’ve said our sense is that some investors are maybe underestimating the probability of a material decline at some point, but I can’t say when this might be.”
The governor’s comments come amid concerns that US equity markets — the S&P 500 surged 20 per cent in the year to May — had reached record highs on the back of artificially low interest rates rather than economic fundamentals.
Full interview transcript
European markets also skidded this week on renewed concerns over its banks, most notably Portugal’s Banco Espirito Santo.
And despite a 25 per cent fall in the price of iron ore since the start of the year to below $US100 a tonne, the Australian dollar — which once closely tracked the prices of Australia’s biggest exports — has risen from about US90c to US94c.
Reserve Bank officials including the governor have repeatedly questioned the stubbornly high value of the currency, arguing that it was frustrating the economy’s transition away from resources.
“Maybe people are listening differently, that can happen, but I think we’ve had a fairly consistent story,” Mr Stevens said, batting away criticism that the RBA’s use of slightly different language to critique the currency had confused some investors.
Noting recent concerns of the Bank for International Settlements that ultra-loose monetary policy was promoting asset price bubbles and poor investment built on excessive risk-taking, Mr Stevens said the “jury was still out”.
In its June annual report, the BIS pointed to a tripling of high-yield corporate bond issuance to $US90 billion a quarter in 2013 compared to the pre-GFC era and an eerie slump in financial volatility to levels not seen since 2004.
Mr Stevens said: “We should be trying to form an assessment of how much is the risk-taking of the kind that we want by entrepreneurial business in the so-called real economy, a new product, a new factory, a new process, an innovation and by extension some employees as well.”
http://www.theaustralian.com.au/business...6986190263