According to JP Morgan analysis:
- $200bn Australian dollar buying by central banks and sovereign wealth funds since the global financial crisis has added an estimated US6c-US8c to the dollar’s value
- Also, new structural allocations to cash and fixed-income assets, such as bonds, meant there was a natural flow of buying when the currency weakened in order to maintain portfolio weightings
This may mean the old adage that the Australian dollar climbs the stairs and goes down in an elevator may not hold as much weight as previously.
“This has important implications for monetary policy,” JP Morgan interest rate strategist Sally Auld said.
“If the currency remains resilient despite a weakening in the external environment, then this places a greater burden on monetary policy to facilitate trend growth and inflation outcomes.”
Reserve status aided Australian dollar’s ascent (Article is gated)
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This analysis has important implications for the Australian dollar value, too. At the margin its going to be stronger than otherwise ( Note: It doesn’t mean the AUD cannot fall in value).
