Dollar value could stem rate hikes

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By Robert Carry

The Reserve Bank of Australia (RBA) may hold off on further interest rate climbs if the surging Australian dollar reaches parity with the greenback, it has been claimed.

According to State Street Global Markets head of global macro strategy Michael Metcalfe, the deflationary pressure exerted by a strong Australian dollar will have a similar impact as an interest rate increase.

"I think that there will be an increasing focus on the RBA's attitude towards the Aussie dollar and to what extent they're willing to accommodate its appreciation and also at what point does the strength of the Australian dollar begin to impact our monetary policy decisions to the extent that interest rate markets are forecasting a number of hikes from the RBA next year," she told Business Spectator.

Metcalfe continued, "Let's say, for example, if the Aussie dollar did get to parity, there may be question marks about how many of those hikes will be needed, because obviously the strength of the Australian dollar will act as interest rate hikes on its own."

It has been widely predicted by experts that the RBA will continue to increase rates over the coming months after back-to-back 25-oint rises in September and October. The RBA has repeatedly pointed to a necessity to bring rates back to a "normal" level.

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