Exchange Rates - RBA intervention ??? (1 Viewer)

[Smilebuffalo]

Hey guys,

Can someone give me a good explanation on how the RBA affects the exchange rate by dirtying the float? Also, how does sterilisation work?

 

[ComingUpForAir]

Sells or buys forgien reserves, or runs permently tight monetary policy (forgien capital flows in, and needs AUD to buy local securities, and visa versa)

And Docotor Jolly is wrong when he says supply and demand are no longer in control of the AUD exchange rate, it's just that the RBA is not a private enterprise..

 

[twistedrebel]

Supply and Demand still control AUD exchange rate

 

[darshil]

In a floating exchange rate systems forces of demand and supply determine the price of AUD. However with this method there is a lot of volatility (suddenly high, suddenly low etc). The RBA does not like that so it uses its foriegn reserves to change the supply/demand of AUD to manipulate the price.
Firstly it can buy foriegn currencies by selling AUD (this increases the supply of the AUD which results in a depreciation)
Secondly it can sell foriegn currencies in exchange for AUD (this increases the demand of the AUD which appreciates the currency).

An example might be some shock in the USA that has created panic and suddenly the AUD has depreciated. The RBA can sell its foriegn currency to somewhat reverse the panic and stabilise the currency.