Mecklai: Is Australian Dollar overvalued?

Mecklai Graph of the Day: The Aussie has been in an appreciating mode lately. The real upward trajectory for the currency has been witnessed especially since the last 2 years. Australia being a major exporter of base commodities, an overvalued local currency is contradictory for the cause of export realizations. Lately there has been buzz that the RBA would participate in Fx market interventions to stop or limit the elevated levels for the AUD.

The AUD/USD pair has appreciated close to 7.78% since start of second half on the 1st of June to date. Governor Stevens presented himself to the House of Representatives this morning and was due to give a briefing on the economy. The issue was discussed in his analogy as well. He said that they are not considering intervening in the markets largely due to some reasons. Firstly, there is no immediate need felt as the situation is not yet out of hand. Secondly, talking about the more recent example of Japan where the BOJ did intervene in the markets to protect their interests did not yields desirable results.

Also, something of interest mentioned by the Governor was that lately Central Bankers across, especially pointing out to purchases made by the Swiss National Bank were “remarkable” as in times of turmoil commodity currencies usually react with most volatility. This accumulation by various strategists and bankers may be helping the cause of the pair and taking it higher in trade. This puts a question to the RBA to mingle in the markets further down the track.

The below charts shows the movement of the AUDUSD in 2H 2012

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