The Reserve Bank of Australia will probably try to weaken the nation’s currency, which rose today to a three-month high against the U.S. dollar, the head of Australia & New Zealand Banking Group Ltd. said.
The so-called Aussie hasn’t declined along with commodity prices in spite of the currency’s links to raw materials, Michael Smith said in an interview with Bloomberg Television’s Angie Lau from Hong Kong today. The Australian dollar traded at 91.35 U.S. cents as of 4:24 p.m. Sydney time after touching 91.58, the strongest intraday level since Dec. 10.
“Is it a little bit too high?” Smith, 57, said. “Probably it is and I’m sure the Reserve Bank governor will try to push it down a little bit.”
The Aussie rallied 2.4 percent in March, the most versus the greenback among 16 major peers, as economic data fueled speculation the central bank will raise interest rates. That has overshadowed concern commodity exports to China, Australia’s largest trading partner, will fall as the Asian nation’s economic growth slows.
Australian data showing surging building approvals, faster economic growth and increased employment helped spur swaps traders to bet that the RBA will add 16 basis points to its benchmark rate over the next year, according to a Credit Suisse Group AG index. RBA Governor Glenn Stevens has kept the rate at a record low of 2.5 percent since August.
A rate increase is expected in the first quarter of 2015, the first in a series forecast to bolster the benchmark by 100 basis points by the end of next year, according to the median estimate from a Bloomberg poll of economists this month. ANZ’s forecast matches the survey.
Stevens, who is scheduled to speak at an investor conference in Hong Kong tomorrow, said the Aussie was “uncomfortably high” in November and December, helping drive its worst annual drop in five years. The currency gained 1.9 percent last month, the most since September, after the RBA signaled a period of stable rates.
Commodity prices have fallen amid the prospects for a slowdown in China, with a a benchmark index for iron-ore prices in the Asian country slumping by 17 percent in the past six months. Shipments of iron ore made up nearly half of Australia’s exports to China in 2012-13.
“The Australian dollar has always been an commodity currency,” ANZ’s Smith said today. “As we’ve seen commodity prices coming off, we haven’t seen the dollar fall with it.”