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The Australian dollar appreciated to a level well above its long-run average on both a trade-weighted basis and against the US dollar, Reserve Bank of Australia's Assistant Governor of Financial Markets, Guy Debelle said Thursday. He added, "With market conditions normalizing, the Bank has therefore taken the opportunity to replenish the foreign reserves that were deployed during this episode."
"The Australian dollar carry trade now again appears to be back in vogue." He noted that the link between the Australian dollar and the global investors' fluctuating attitude toward risk is reflected in the strong increase in the correlation between the AUD/USD exchange rate and equity indices from the middle of last year.
"What is interesting is that this correlation has remained so high since the start of the year, even as market conditions have improved." This indicate that the perceived reduction in risk has been an important force in driving the appreciation of the Australian dollar since March, said Debelle.
According to Debelle, the Australian economy remained resilient to swings in the exchange rate. Reflecting large portfolio adjustments by global investors, the Australian dollar moved through a wide range. But, the movement in the exchange rate proved to be an important means of assisting the Australian economy adjust to changes in the global economic environment. "As on earlier occasions, the economy has proven to be resilient to these swings," said Debelle.
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