Peter Lavelle, 28.02.2013
Go greenback! The US dollar hit its highest point against the Australian dollar in four months this week, or since October 10th 2012, at 0.9778.
This means the greenback has gained more than two and a half cents since the start of the year, when it was 0.9521.
To put that into context, a transfer of US $250,000 into Australian dollars is hence worth AU $6,425 more today than January 1st.
One reason the US dollar to Australian dollar exchange rate has climbed is that, last week, Reserve Bank of Australia (RBA) governor Glenn Stevens called the Australian dollar "somewhat too high". Speaking at Australia's Parliament in Canberra last Friday, Mr. Steven's comments suggest the Australian dollar is overvalued, and that if it climbs again, the RBA may intervene to bring it back down.
In addition, recent comments by Guy Debelle, assistant governor at the RBA, echoed these sentiments.
In a speech in Adelaide on Tuesday, Mr. Debelle said that "We still obviously retain scope to lower interest rates further, including to counterbalance the pressures of an elevated exchange rate." Again, this suggests Australia's central bank may intervene to weaken the Australian dollar.
Looking ahead, the US dollar to Australian dollar exchange rate could continue to climb. This is because the threat of the RBA intervening to weaken the Australian dollar will now hang over the currency.
Even if it doesn't, just the hint of intervention will likely be enough to spook investors, taking the Australian dollar lower. Given that, the US dollar could soon strengthen in relation.
Furthermore, there's the fact that the US economy is continuing to pick up. For instance, sales of new homes rose 15.6% in January to 437,000, the biggest single-month gain since July 2008. Insofar that housing makes up a huge part of the US economy, this therefore bodes well for America's future prospects, as well as the greenback.
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