A US default could see the Aussie dollar soaring

Tuesday, 15 October 2013  Media Alerts

A senior academic from the Australian School of Business is available for comment on the rise of the Australian dollar and the connection with a possible US default.

James Morley, a Professor of Economics at UNSW's Australian School of Business, said "a US default would almost certainly lead to a large drop in the US dollar relative to other currencies - and that would effectively see the Australian dollar soaring against the US currency."

US politicians have been in intense meetings ov​er the past few days in the hopes of sealing a deal before the US Treasury exhausts its borrowing authority on Thursday.

He said "an exchange rate back above 97 US cents for the Australian dollar is in theory possible - Indeed, if there is a default, it is quite easy to imagine that the Aussie and greenback would hit parity once again."

However James Morley said that despite the looming debt ceiling crisis in the United States, a default is almost inconceivable. "I don't think a default will occur. The consequences are too dire."

There are now report of a tentative US Senate fiscal deal, which would increase the debt limit through to February 15.

James Morley has been watching the markets, and is a member of the RBA Shadow board, which meets each Thursday before the decision by Reserve Bank of Australia board. He said "we were in a situation where financial market expectations about Australian interest rates were the biggest driver of the Australian dollar, which had fallen about 20% off its peak last year. Now however US monetary policy is driving its rise again."
For further comment call James Morley on 02 9385 3366, 0406 842 550, or james.morley@unsw.edu.au​
Media contact: Julian Lorkin: 02 9385 9887