Why has the RBA been accumulating foreign currency reserves for the past three months?
Reserves have grown by $1.3 billion and no one is quite sure why. On Tuesday. RBA Governor Stevens was asked directly and said:
“On so-called passive intervention, let’s just say that was customer business that we decided to keep on the balance sheet because the prices seemed attractive to do that.”
What he means:
Some (large) AUD buyers deal directly with the central bank, rather than go through brokers. Generally, the RBA will complete the transaction and then unload whatever payment it received by converting it back to AUD.
Stevens is saying that the RBA has decided forgo the final step. Instead of unloading the payments by buying AUD, it is hanging on to the foreign currencies and hoping to convert them when AUD is cheaper — basically acting like a giant hedge fund.
Unfortunately, Stevens made no indication on how long or how much more foreign currency the RBA will accumulate. I doubt the RBA wants to hold the excess reserves for long, they believe AUD will be lower in the next 6-12 months.
