Forex Flash: Is the RBA already minting currency? – UBS

FXstreet.com (Barcelona) - "The Reserve Bank of Australia may have recently begun printing Australian dollars to satisfy overseas currency demand from foreign central banks. We find the evidence for this is compelling, but not yet conclusive." writes Research Analyst Gareth Berry at UBS.

Balance sheet dynamics hint at this( as Australia's FX reserves suddenly began to increase in August. Deposits of foreign institutions held at the RBA lurched upwards then too  and by a similar amount. It is as though freshly minted Australian dollars are being sold directly to foreign central banks and the proceeds added to the RBA's pool of FX reserves.

(If this is a genuine policy innovation, then it takes the RBA into uncharted territory. Portfolio inflows to Australia have been an important source of appreciation pressure on the AUDUSD for some time  and the reserve manager fraternity in particular have been conspicuous buyers. "Meeting that demand in this way would alleviate a portion of the upward pressure on the currency, but we do not expect the Australian dollar to fall sharply on this. We stick to our existing forecasts, and look for the AUDUSD to fall back to parity in 3m." Berry states.