RBA boss Glenn Stevens says 75 US cents is ideal level for Aussie dollar

RESERVE Bank Governor Glenn Stevens maintains the Aussie dollar is overvalued and that by year’s end it will sink even further against the US dollar.

RESERVE Bank Governor Glenn Stevens wants the Australian dollar to fall to about 75 US cents and says any interest rate cuts need to be delivered in a way that boosts confidence rather than highlight the economy’s woes.

He’s told Fairfax Media that the falling terms of trade, a key measure of export income that will see billions wiped from next week’s budget update, had been greater than expected and that was a key reason the currency should fall.

Mr Stevens said if he had to pick a level for the currency, probably 75 US cents was better than 85 US cents.

He told The Australian Financial Review that the ideal level for the dollar was something of a moving target, but it had come from an unsustainable level of well above parity.

Reserve Bank Governor Glenn Stevens said interest rate cuts need to be managed in a way that boosts confidence, rather than raise fears over the economy. Picture: Stuart Quinn.

The RBA governor said this year’s strategy of keeping rates steady at 2.5 per cent delivered a message of stability that was the best way to buttress household and business sentiment.

Asked if further rate cuts would harm sentiment, Mr Stevens said any additional stimulus would need to be linked to a “confidence-enhancing narrative”.

“A positive narrative might be inflation is not any impediment to even lower rates if they would be helpful,” Mr Stevens said.

“And you would still expect, I think, that lower interest rates are stimulatory for the economy. But we’re certainly reaching levels where, for those who have interest rates as their income, the income effect on them is clearly quite something to be thought about.”

On the health of the global economy, Mr Stevens said that even though Japan had seen renewed weakness and Europe was still struggling, China was still looking solid and the US economy was strengthening and that was “not too bad an environment for Australia”.

Originally published as RBA boss Glenn Stevens says 75 US cents is ideal level for Aussie dollar