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Hot money flows into the Australian dollar, which got a further boost on Thursday from a surprise increase in job numbers for July, has some market watchers questioning whether the currency’s rise is out of “whack” with economic fundamentals. But one strategist argues that the Aussie’s performance is not surprising from past trends.
Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital Investors says calls for the Reserve Bank of Australia (RBA) to intervene to stem the Aussie’s rise on the basis that it’s being boosted by capital inflows are not justified.
“The recent strength in the Australian dollar is not particularly unusual and is certainly not extreme enough to warrant any direct intervention in foreign exchange markets by the RBA to limit its value,” Oliver said in a note on Thursday.
Economists have been concerned that the currency is being driven higher by temporary factors like investors seeking safe havens fleeing the euro and the U.S. dollar and central banks diversifying their reserves.
The RBA, which kept interest rates on hold earlier this week, warned that the Aussie dollar has remained high despite a decline in fundamentals like the country’s terms of trade — which measures the ratio of export prices to import prices — and a weaker global outlook.
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