Australia & New Zealand Banking Group Ltd. (ANZ) Chief Executive Officer Michael Smith said he expects the Aussie dollar to maintain its strength as long as the U.S. Federal Reserve keeps up monthly asset purchases.
“It’s unlikely we’ll see a huge reduction or a major reduction in the Aussie dollar’s strength until there is a tapering in the U.S.,” Smith said in an interview broadcast today on the Australian Broadcasting Corp.’s Inside Business program. “As the U.S. dollar strengthens, we’ll start to see the Aussie come off a bit.”
The Federal Reserve decided it would press on with $85 billion in monthly bond purchases, saying last week that it needs to see more evidence the U.S. economy will continue to improve. The central bank also said the economy is showing signs of “underlying strength.”
While the Australian dollar fell to a three-year low of 88.48 U.S. cents on Aug. 5 amid speculation the Fed would begin to taper bond purchases by year end, that sentiment reversed as a government shutdown in the U.S. slowed growth, prompting the Aussie to touch an almost five-month high of 97.58 on Oct. 23. The Aussie closed at 94.38 U.S. cents on Nov. 1.
Reserve Bank of Australia Governor Glenn Stevens said last week the Aussie dollar “at some point in the future” will be ‘materially lower.’’
Economists in a Bloomberg survey project that tapering in the U.S. will begin in March, based on the median estimate.
“I don’t think the tapering will happen until well into next year,” Smith said. “It will create some volatility. There will be adjustment.”
ANZ, the country’s third-largest lender by market value, has maintained its credit standards, Smith said. Charges for bad debts in the last year fell 5 percent to A$1.2 billion from a year ago and newly impaired assets in the year dropped 22 percent, ANZ said Oct. 29.
“We haven’t lowered our standards,” Smith said. “In fact, I think over the last few years we’ve maintained credit standards very well.”
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