Australia’s central bank Governor Glenn Stevens expressed surprise his counterparts in Switzerland have bought the local dollar, a currency investors traditionally sold when commodity prices declined.
The Swiss National Bank has purchased the Australian dollar since May, according to the RBA, and Stevens told a parliamentary panel in Canberra today that the holdings reflected the severity of Europe’s economic problems. Australia’s currency is increasingly viewed as a safe haven for some investors, both private and official, he said.
“I never thought I would ever see such an anti-inflationary, conservative institution as that hold our currency as part of its reserves,” Stevens told lawmakers. “It’s a remarkable thing. But it’s a picture of how bad the world is in Europe.”
Switzerland started a currency cap in September to fight deflation and help exporters. Australia’s currency renewed its appreciation in the past two months, surging 7.1 percent since the RBA last lowered rates on June 5, even as commodity prices declined. The local dollar bought $1.0430 at 1:48 p.m. in Sydney.
“Historically, we were places you ran away from when risk was perceived as growing,” Stevens said. “It’s conceivable that you could get the terms of trade fall but there’s some event that causes safe-haven flow towards us. I don’t actually think that will happen. You can imagine it, but most likely if the terms of trade fall the currency will go down.”
During three hours of testimony, Stevens said he’s seeing more “official flows” into the Aussie recently, referring to central banks and other government institutions that typically are “not usually the most adventurous” of investors.