The Australian Dollar might have enjoyed a bullish relationship with several of its rivals following the release of unexpectedly upbeat Chinese trade data, but according to the International Monetary Fund the currency is too strong.
In its latest review of Australia the IMF asserted that the Australian Dollar is overvalued at the present time and that the currency needs to fall by up to 10 per cent in the near future.
At the time the report was prepared the Australian Dollar was trading in the region of 89 US cents but the currency has since pushed beyond 90 cents thanks to China’s economic news brightening Australia’s trade prospects.
In the report it was claimed that the South Pacific currency’s exchange rate is between 5 and 10 per cent higher than it should be, although it admits that such an estimate is open to significant uncertainty.
The Australian Dollar’s strength was the subject of negative headlines earlier this week as Toyota announced that over 50 years of manufacturing Down Under would come to an end due to increased costs and an unfavourable Dollar.
The IMF believes that the ‘Aussie’ should be trading around the 80-85 US cents mark, a level previously pushed for by Reserve Bank of Australia official Heather Ridout.
The report states; ‘Australia’s floating exchange rate has been a vital shock absorber for the economy during the upswing of the mining investment boom. [But in 2012/13] the exchange rate did not depreciate as would normally be expected.’
After the IMF comments were made public the Pound extended earlier gains against its Australian rival.
The GBP/AUD pairing largely recovered earlier losses during the European session as Sterling surged in response to the Bank of England’s encouraging inflation report.
Yesterday the ‘Aussie’ achieved its strongest level against the Pound so far in 2014. However, if the Australian employment reports scheduled for release at 00:30 GMT show the expected increase in the nation’s unemployment rate the Australian Dollar could entirely reverse its advance.
Australian Dollar (AUD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Australian Dollar,
,US Dollar, 0.9046,
Australian Dollar,,Euro, 0.6664,
Australian Dollar,,Pound, 0.5459,
Australian Dollar,,New Zealand Dollar, 1.0855,
US Dollar,,Australian Dollar, 1.1051,
Euro,,Australian Dollar, 1.5001,
Pound Sterling,,Australian Dollar, 1.8307,
New Zealand Dollar,,Australian Dollar, 0.9232,
[/table]
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