RBA chief confident dollar will slip

Reserve Bank governor Glenn Stevens says the value of the Australian dollar remains high, and it lacks the support of economic fundamentals at the present level of above US95¢.

Reserve Bank governor Glenn Stevens says the value of the Australian dollar remains high, and it lacks the support of economic fundamentals at the present level of above US95¢.

He also said the dollar was likely to fall "materially" at some point in the future, although he was not specific.

"The terms of trade are likely to fall, not rise, from here," he said. "So it seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today."

The Aussie fell on his comments, shedding more than a quarter of a cent from US95.75¢ to about US95.40¢. It continued its slide later in the day, and was buying US95.09¢ late on Tuesday.

Mr Stevens' comments on preferring a lower dollar are not new, although they have come after a brief period in which the RBA appeared to be more comfortable with its recent elevated levels.

He also sounded an upbeat note about the state of the world economy, saying a recent meeting of global policymakers in Washington had a "distinctly more relaxed tone" than at similar meetings earlier this year.

The US economy appeared to be "healing", Chinese economic activity looked "robust", and sentiment in Australia had improved in the past year, he said.

And though it was too early to signal "great concern" about recent house price rises across the nation, he singled out Sydney's property market, where the rate of finance approvals has increased more than 40 per cent in the past year, and warned banks and home buyers not to get ahead of themselves.

The RBA governor said he did not think the signs were worrying in the Australian property market because some increase in house prices was part of the "normal cyclical dynamic".

"My own view, thus far, has been that some rise in housing prices is part of the normal cyclical dynamic, that it improves the incentive to build, and that a price rise reversing an earlier decline probably isn't something to complain about too quickly," he said.

"Lenders and borrowers alike would be well advised to take due care ... it is very important that strong lending standards remain in place, and that decisions be based on sensible assumptions about future returns," he said.

His comments about Australia's property market were echoed on Tuesday by Australia Prudential Regulation Authority chairman John Laker.

Mr Laker warned homeowners not to expect the present low interest rates, which made property more affordable, to last forever.

"Markets may be expecting low interest rates to last for some time. However, interest rates have a cyclical pattern and when Australia's economic circumstances require, they will rise," he said.

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