Dollar slips in late trade

The local unit has fallen below US75.5 cents, but is still seen as overvalued, say analysts.

The Australian dollar was “one of the casualties when the dust settled on Jackson Hole”.

The Australian dollar might be as much as 5 per cent overvalued at current levels, enough to put the brakes on recovery across the resource-rich economy, according to research by UBS.

The Aussie dollar was lower in late trade on Monday, hit hard over the weekend by hawkish comments from senior US Federal Reserve officials that supported the US dollar.

At 5.30pm (AEST), the unit was trading at US75.41 cents, down from US75.63c on Friday.

The Australian dollar was “one of the casualties when the dust settled on Jackson Hole where the US Federal Reserve gave indications of interest rate hikes,” said Stephen Innes, senior currency trader at OANDA Australia and Asia Pacific.

But the currency still remains at elevated levels likely to irk the Reserve Bank of Australia, said Scott Haslem, chief economist at UBS.

Recent gains in the Aussie have seen it return to the top of its fair value range, Mr Haslem said. Using modelling that replicates in-house modelling at the RBA, Mr Haslem added the currency is currently around 5 per cent overvalued.

Commodity prices, which are more than 12 per cent higher since January in US dollar terms, and attractive relative bond yields have helped lift the currency, he said.

“The rising Australian dollar remains a complication for the RBA that presents some downside risk for the otherwise ongoing rebalancing of the economy,” he added.

Australia’s economy is making a shift from a reliance on mining to a broader economy. Lower interest rates and a 30 per cent fall in the Australian dollar since 2011 are helping the shift. But economists warns that any bounce in the currency is likely to dent growth.

The remainder of the week should be quiet, with US employment data Friday set to determine direction for global markets ahead of the next policy meeting at the US Federal Reserve in September.