HomeForex TradingAustralian Dollar Slides as RBA Financial Review Flags Increased Risks
April 9, 2020
Australian Dollar Slides as RBA Financial Review Flags Increased Risks
In the last few weeks the Australian Dollar has suffered a wide range of losses and declines. Today it has strengthened a little but has remained very unstable due to the RBA reports. Today, we take a look at what is going on with the Australian Dollar and the RBA’s financial review flags raised.
For those of you who don’t know who Alexandra Andrews is, she is the Editor of Money Minded, the Australian website that covers all of the daily news relating to the Australian dollar. You can find her at the site often.
If you go through the posts that she has made over the past few weeks, you will see that she is concerned with the RBA’s comments on the currency market, specifically the money supply. You can also find her posting about the Chinese liquidity crisis.
The currency markets are also becoming quite volatile in recent months and Alex Andrews is worried about the moves and challenges that are occurring within the markets. She also notes that there seems to be a tightening in liquidity within the banking sector and this is causing problems within the currency markets.
Now, it is true that there is no question that the Chinese central bank is tightening liquidity in the currency markets. What Alex Andrews does not explain is why the Chinese banks appear to be moving even more cautiously when it comes to the currency markets. However, you should understand that tighter liquidity usually means that there is a greater risk.
The central bank’s tightened liquidity policies means that there is a higher probability that the government will be forced to intervene. This means that the currency markets may be forced to move in a direction that has historically been opposed to the central bank. This could cause the Australian dollar to move even more against the U.S. dollar.
To be clear, as far as we can tell, Alex Andrews is not worried about the China government intervening in the currency markets, she is worried about the RBA tightening the monetary policy which may move the currency markets toward further volatility. It is in her interest for the currency markets to move into the opposite direction to the central bank’s guidance.
When we look at the RBA’s reviews for the currency markets, it seems that they are trying to create some confusion in the market. They are attempting to create uncertainty. The documents state that they have seen signs of increased risks and volatility in the markets.
The central bank appears to be trying to move the currency markets in a direction that is unfavorable to the direction that they have told the currency markets that they want to see them move. It appears that they are trying to increase the risk by creating volatility in the currency markets.
The documents state that the RBA reviewed evidence that was uncovered during a recent audit of the money market funds and concluded that there had been some increases in risks and that some of the funds were at risk of losses. The risks that the RBA flagged were: low liquidity; increased volatility; low interest rates; and an increase in loan losses and credit default swaps.
It appears that the evidence that the RBA uncovered was not enough to warrant a hike in interest rates or a run on the banks. It appears that the central bank only recommended increased liquidity in the economy and credit risk management in the credit markets, but did not believe that these measures were enough to create a threat.
As we look at what the RBA is warning about and as we read about the other countries considering intervention, it is hard to see how any country can take too much risk with their currency if they know that the central bank is tightening the monetary policy. Even the banks would need to consider whether they had any other means of getting funding.