SYDNEY: Despite the recent fall in the Australian dollar, it remains "higher than most conventional estimates of fundamentals would indicate," a senior Australian central banker said on Tuesday.
That means the exchange rate is offering less assistance than it would normally be expected in achieving balanced growth in the economy, Reserve Bank of Australia Assistant Governor Guy Debelle told a Citi conference in Sydney.
"A lower exchange rate would be helpful in achieving that objective," he said.
The Australian dollar slumped 4.2 percent in September on a trade-weighted basis, suffering its biggest monthly fall in over a year. But the decline has only taken it back to levels seen early this year.
"Over that same period, Australia's terms of trade has continued to decline and some key commodity prices for Australia, most notably the iron ore price, have declined considerably," Debelle noted.
"On that basis, the Australian dollar is still higher than most conventional estimates of fundamentals would indicate, notwithstanding its recent decline."
Debelle said the main development in the foreign exchange market in recent months was the appreciation of the US dollar. He said why the greenback has finally started to appreciate when it did has baffled many in the market.
"We are in an unusual environment where monetary policy settings in the four major economic regions - the US, China, Europe and Japan - are moving in divergent directions," he said.
"It is an extreme environment that both markets and policy makers are operating in, where the balance sheets of major central banks are at an unprecedented size.
It is challenging for foreign exchange markets and it creates a complicated environment for setting monetary policy in other parts of the world, including here in Australia."
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