Reserve Bank of Australia Governor Glenn Stevens said Tuesday that the Australian dollar is most likely to come down at some point in future, as the current exchange rate position is not supported by costs and productivity.
"The foreign exchange market is perhaps another area in which investors should take care," he said during speech in Sydney.
"While the direction of the exchange rate's response to some recent events might be understandable, that was from levels that were already unusually high. These levels of the exchange rate are not supported by Australia's relative levels of costs and productivity."
The terms of trade "are likely to fall, not rise, from here. So it seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today," Stevens said.
At its October meeting, the central bank left the benchmark cash rate unchanged at a record low of 2.5 percent for a second consecutive time, saying a weaker exchange rate than seen at present would assist in rebalancing growth in the economy.
The RBA has reduced the cash rate by a cumulative 225 basis points since November 2011 on the premise that accommodative policy is needed to support demand in areas outside the resources sector, as the peak in mining investment approaches.
Referring to the recent turbulence in markets over expectations of an imminent Fed taper and the subsequent calm after the Fed abstained from such a move in September, Stevens said it "would be a mistake to relax for very long in the face of this delay. Surely the 'taper' will come."
He noted that a positive trend in asset markets and a lessening of political uncertainty at home have boosted household and business confidence recently. "It is not yet clear to what extent, or when, these more favourable trends in 'confidence' will translate into intentions to spend, invest and employ," he pointed out.
On the recent concerns over the property market dynamics, Stevens said it is too early to signal great concern. Some rise in housing prices is part of the normal cyclical dynamic, while the current pace of credit growth does not suggest that rising leverage is so far feeding the price rise.
Steven said still there are two caveats. The first is that credit growth may pick up somewhat over the period ahead. Secondly, while overall credit growth remains low at present, borrowing is increasing quite quickly in some pockets.
He urged lenders to ensure that strong lending standards remain in place and that decisions are based on sensible assumptions about future returns.
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