RBA Direct Intervention (1 Viewer)

[_ShiFTy_]

When the RBA buys $AUD, does that increase the demand? And when the RBA sells $AUD, does that increase supply?

I get confused when the RBA intervenes directly, rather than indirectly through interest rates

 

[Mr. Sabuncuoglu]

well when the RBA looks to directly Intervene by either buying or selling... it's trying to get the $A to the way they want it..
The RBA often intervenes to curb large volatility in the value of the currency...

RBA - hopes to increase the market value of AUD...
1. buys a significant amount of our currency, the increase demand will push the equilibrium price up automatically.
2. Use buying as a signal that it feels the value of the currency is unfair (undervalued) and that it had confidence of a further increase in the market value


hope that sorta makes sense to your question...?

 

[_ShiFTy_]

What happens with the RBA sells $AUD...does this increase the supply of $AUD?

 

[insert-username]

When the RBA buys $AUD, does that increase the demand? And when the RBA sells $AUD, does that increase supply?

Yes and yes. If the RBA is buying $A, there's more demand for the $A, and vice versa.

Just think of direct intervention as the RBA actually going down to the marketplace and shouting at the dealer that they want to buy or sell some $A. Indirect intervention is the RBA saying "change the interest rate", then staying at home and watching TV for the rest of the day. By the way, remember interest rates are very, very rarely changed to influence the value of the $A.


I_F

 

[gnrlies]

Yes and yes. If the RBA is buying $A, there's more demand for the $A, and vice versa.

Just think of direct intervention as the RBA actually going down to the marketplace and shouting at the dealer that they want to buy or sell some $A. Indirect intervention is the RBA saying "change the interest rate", then staying at home and watching TV for the rest of the day. By the way, remember interest rates are very, very rarely changed to influence the value of the $A.

I_F

"rarely" is not the correct word. "never" is the correct word.

In 1996 the howard government sponsored a charter of independance, and monetary targeting (determined by a 2-3% inflation target over the cycle) for the RBA. Monetary policy no longer has any formal connection with interest rates (since financial dereuglation / floating of australian dollar in 1983)