@mikeyjon
"Could I ask a question from those with a sharper economic education than mine, if the aussie dollar keeps declining how does that affect the price of the banks overseas borrowing capacity to fund loans. Would that force them to increase their lending rates even if the reserve stays steady."
This is a really good technical question, even if it has nothing to do with the price of gold.
Australian banks are all heavily dependent of off shore money to fund their balance sheets. But movements in the AUD-USD have little or no impact on the pricing of these funds.
- Almost all money borrowed by Australian banks in other currencies is hedged back to the currency in which the funds are borrowed (mostly using long term cross currency interest rate swaps) or used to fund assets denominated in that currency (hence leaving no currency risk).
- It is the perceived creditworthiness of the Australian banks that determines the pricing (interest rates) at which the banks can borrow. Typically, funds sourced from off shore are much cheaper than funds borrowed domestically.
Australians like to bag their banks, but tend to forget (or don't know) that they are among the financially strongest banks in the world. There is a huge appetite for Australian bank "paper" in the global investment community.
If Australian bank lending rates are to rise it will have one of three causes:
- A rise in the official (RBA) cash rate;
- Changes in the Basel based capital adequacy requirements (not likely); or
- Industry wide credit rationing (that usually follows a general down turn in the economy).
Disclaimer: I own no shares in any Australian bank. My observations are based on knowledge of an industry in which I worked for 25 years.