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RBA says Aust dollar near 4 1/2-year low needs to fall more

RBA says Australian dollar near 4 1/2-year low needs to fall further

Dec. 2 (BusinessDesk) - The Reserve Bank of Australia said its currency, near a 4 1/2-year low, remains over-valued and needs to decline further to assist the economy across the Tasman, which is growing at a moderate pace.

The central bank kept its cash rate unchanged as expected at a record low 2.5 percent, where it has been since August 2013. Governor Glenn Stevens issued a statement broadly unchanged from his announcement at the start of last month, although he now notes the US economy is continuing to strengthen and China's economy is responding to policy "in a way that should support growth."

Stevens repeated his view that the Australian dollar had weakened recently, saying it largely reflected a stronger US dollar.

"But the Australian dollar remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices in recent months," he said. "A lower exchange rate is likely to be needed to achieve balanced growth in the economy."

The Australian dollar rose to 85.13 US cents, from 84.80 cents immediately before the statement was released and the lowest since mid-2010. The kiwi dollar edged down to 92.53 Australian cents from 92.65 cents and has gained 0.5 percent against its trans-Tasman counterpart this year.

He said global financial conditions remain "very accommodative and long-term interest rates and risk spreads remain very low," but he omitted his observation of last month that volatility had picked up in some markets.

He repeated that the labour market had "a degree of spare capacity" while noting the unemployment had edged up. Jobless figures for October were released the day after last month's statement, printing at a higher-than-expected 6.2 percent.

Stevens reiterated that inflation is expected to be consistent with the 2 percent-to-3 percent target over the next two years.

(BusinessDesk)

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