RBA 'not convinced' on intervention
He also says the dollar remains higher than its medium-term average suggests it ought to be.
However, Mr Stevens has defended the RBA's decision not to intervene in the currency market so far - despite the dollar failing to fall with economic fundamentals.
In a speech at an Australian Business Economists dinner on Thursday night, he said he remained unconvinced that the benefits of such "large-scale intervention" would have outweighed the costs.
"In this episode so far, the bank has not been convinced that large-scale intervention clearly passed the test of effectiveness versus cost," Mr Stevens said.
"But that doesn't mean we will always eschew intervention. In fact we remain open-minded on the issue.
"Our position has long been, and remains, that foreign exchange intervention can - judiciously used in the right circumstances - be effective and useful.
"It can't make up for weaknesses in other policy areas, and to be effective it has to reinforce fundamentals, not work against them. Subject to those conditions, it remains part of the tool kit."
Mr Stevens told a room packed with the country's most respected economists that Australia had been well served by a floating exchange rate.
The Reserve Bank has been trying for months now to "jawbone" the Australian dollar lower.
The dollar has remained stubbornly above US90¢ - which is higher than the long-term average - despite the terms of trade dropping from historical highs.
On Wednesday, RBA assistant governor Guy Debelle said the US Federal Reserve held the key to a lower Australian dollar, because its multibillion-dollar bond-buying program was acting to weaken the US dollar against Australia's currency.
Mr Stevens said despite the problems an elevated dollar had created for Australia in recent years, the country remained "best-served" by a floating exchange rate.
Frequently Asked Questions about this Article…
The Reserve Bank of Australia (RBA) is hesitant to intervene in the currency market because they are not convinced that large-scale intervention would be more beneficial than costly. They believe that intervention should only be used judiciously and in the right circumstances to be effective.
The RBA remains open-minded about foreign exchange intervention. They acknowledge that it can be effective and useful if used in the right circumstances, but it should reinforce economic fundamentals rather than work against them.
The RBA views the Australian dollar as being higher than its medium-term average suggests it should be. Despite efforts to lower it, the dollar has remained stubbornly high.
The US Federal Reserve plays a significant role in the value of the Australian dollar. Its multibillion-dollar bond-buying program has been weakening the US dollar, which in turn affects the Australian dollar's value.
The RBA believes that Australia is best served by a floating exchange rate. This approach allows the currency to adjust naturally to economic conditions, which has been beneficial for the country.
The high Australian dollar has created challenges by not aligning with economic fundamentals, such as the terms of trade dropping from historical highs. This misalignment can impact the competitiveness of Australian exports.
'Jawboning' refers to the RBA's efforts to verbally influence the Australian dollar's value by signaling their preferences and intentions to the market, hoping to guide the currency lower without direct intervention.
The RBA considers intervention when it believes it can be effective and useful, reinforcing economic fundamentals. They weigh the potential benefits against the costs and only intervene if it passes this test of effectiveness.
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