Australia’s dollar is likely to drop in line with commodity export prices, central bank Deputy Governor Philip Lowe said, as the currency hit a four-year low.
“If the exchange rate is to play its important stabilizing role, it needs to go down when the terms of trade and investment are declining,” Lowe said in a speech in Sydney late yesterday. “We have seen some adjustment, but if our assessment of the fundamentals is correct we would expect to see more in time.”
While the Australian dollar has fallen more than 8 percent in the past three months, it remains elevated as the nation’s key interest rate of 2.5 percent attracts investors away from the U.S., Japan and Europe where benchmarks are at or near zero. The yield difference has helped the Aussie resist a fall in the terms of trade, or export prices relative to import prices, that normally guide its trajectory.
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