The Reserve Bank of Australia has admitted it was helpless in the face of the US government default crisis because it could not predict or properly prepare for the way the drama would play out.
While the US Congress this week approved an 11th-hour deal to increase US borrowing authority for a few months and end a partial government shutdown, Reserve Bank governor Glenn Stevens said failure to secure a resolution could have gone "very badly".
Fallout from the debt impasse and signs of renewed strength in the Chinese economy pushed the Australian dollar to a four-month high, touching US96.47¢ in the Friday session.
The rise coincided with Australia's share market closing at the highest level since mid-2008.
The benchmark S&P/ASX 200 index closed up 38.4 points, or 0.7 per cent, at 5321.5.
Even so, the rise in the dollar has created a fresh headache for the Reserve Bank, which is under pressure to ease interest rates again, but is mindful of not stoking a resurgent property market.
Mr Stevens said in Sydney on Friday a lower currency would be helpful to the growth drivers of the economy.
"I'd prefer it to be lower than this rather than higher," Mr Stevens said.
Marking one of the most senior central bankers to speak out about the US debt ceiling stand-off, Mr Stevens said there would have been a "very big fiscal contraction in the United States" if the deadline to raise the debt limit had been missed this week.
If that had happened, the US would have had to cut government spending by 4 per cent or 5 per cent of gross domestic product because it wouldn't have been able to fund the expenditure.
"How would that have played out through the system?" Mr Stevens said. "Most of us will have worked out a few contingencies but the truth is we really don't have much of an idea how that would have gone."
He said it was not difficult to contemplate ways in which it could have gone "very badly", but "at least for some months now, we don't face that particular spectre".
He said a partial government shutdown would have probably have some dampening impact of US demand in coming months.
"But my guess would be ... that that won't linger once everybody's back to work, and I understand that, in many instances, they will be backpaid, so I don't think there should be a big impact on demand in the US.
"A much bigger thing would have been had there actually been a default event," he said.
Treasurer Joe Hockey expressed doubts the world had seen the last of the US debt impasse and indicated a renewed focus on opening more markets in Asia as a response to ongoing instability
Mr Hockey told Fairfax Media the government was prepared for more volatility in financial markets, despite Thursday's deal on the US debt ceiling, which averted a default that could have sent the global financial system into a tailspin.
"This is a matter that's going to take a long time to resolve," Mr Hockey said. "Essentially, they are just kicking the can further down the road."
Westpac chief economist Bill Evans said the US political wrangling and tapering delay would be supportive of a Reserve Bank rate cut.
"At present, markets are giving less than a 30 per cent chance of another rate cut from the RBA with rates confidently priced to be rising from September next year," said Mr Evans, who forecasts the central bank to ease rates two more times before it reaches the end of its current easing cycle.
"We expect that to change quite significantly over the course of the rest of this year."