Capital inflows into the Australian Dollar are causing problems for competitiveness of local manufacturing, education and tourism. Professor Warwick McKibbin told The Australian Financial Review:
When a portfolio shift into Australian currency is observed, the exchange rate change should be completely offset so the shock only affects the money markets rather than the real economy. If the shock cannot be observed precisely then the central bank should ‘lean against the wind’, that is intervene to slow down the extent of appreciation of the exchange rate.
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