Australia’s terms of trade strong - Debelle
(28 March 2012 – Australia) Reserve Bank of Australia (RBA) assistant governor Guy Debelle told a conference in Sydney this week that the dollar is at levels consistent with Australia's strong terms of trade.
Debelle said changes in the composition of capital flows, including bank funding sources, had affected the value of the currency.
Because of that, it was hard to tell whether the currency was overvalued or not. But 'the exchange rate is in the ballpark where you'd expect it to be given the rise in the terms of trade,' he said.
While Australia's terms of trade, or the ratio of export prices to import prices, peaked last year, it is expected to stay at very high levels.
At the peak, it represented an annual income boost of between 12 to 15 percent of Australia's A$1.4 trillion in gross domestic product (GDP).
This is driven by a once-in-a-lifetime investment boom in the resources sector as miners dig deep to meet voracious demand from Asia, particularly China.
Debelle also played down worries about growing foreign demand for Australian government bonds, saying those buyers were mainly sovereign wealth funds that tended to buy and hold.
'They're pretty sticky investors,' he said.
Australia's AAA-rated government bonds have become highly sought after as the pool of top-rated countries shrink following the recent downgrade of the United States and France.
Because of that, it was hard to tell whether the currency was overvalued or not. But 'the exchange rate is in the ballpark where you'd expect it to be given the rise in the terms of trade,' he said.
While Australia's terms of trade, or the ratio of export prices to import prices, peaked last year, it is expected to stay at very high levels.
At the peak, it represented an annual income boost of between 12 to 15 percent of Australia's A$1.4 trillion in gross domestic product (GDP).
This is driven by a once-in-a-lifetime investment boom in the resources sector as miners dig deep to meet voracious demand from Asia, particularly China.
Debelle also played down worries about growing foreign demand for Australian government bonds, saying those buyers were mainly sovereign wealth funds that tended to buy and hold.
'They're pretty sticky investors,' he said.
Australia's AAA-rated government bonds have become highly sought after as the pool of top-rated countries shrink following the recent downgrade of the United States and France.
Subscribe