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Syd 09:06:43 GMT - 07/15/2014  

SYDNEY--The Australian dollar is overvalued, and any relief for the nation's exporters may have to wait until the U.S. begins raising interest rates, an economic policy maker said Tuesday.

John Edwards, a member of the Reserve Bank of Australia's interest-rate-setting board, said he agreed with central bank Gov. Glenn Stevens that the currency was too high--especially when weighed against prices for commodities such as iron ore, which is languishing around two-year lows.

Mr. Edwards's remarks will strengthen a view among currency traders that the central bank is becoming more concerned over the currency's level, thus boosting the chances of further rate cuts to try to drive it lower.

The Aussie dollar, which slumped about 15% last year, has recovered over the past several months to about US$0.94. At the start of the year, traders had been confident that with eight successive rate cuts since late 2011 helping to support the economy, the next move in interest rates would almost certainly be up.

But as the central bank's jawboning on the Aussie dollar has intensified in recent weeks, futures markets have begun pricing in an even chance of another rate cut before the end of the year.

"The currency does look a bit overvalued and I've no doubt we'd be better off with a cheaper currency," Mr. Edwards said in an interview.

"I hope to see it. We might have to wait until global markets are more convinced that the U.S. is actually about to move on the overnight rate."

Mr. Edwards declined to point to a desirable level for the currency that would help restore Australia's competitiveness, beyond saying that "lower would be better."

The Australian dollar has risen by about 8% since January as foreign money has flooded back into the economy. Australia offers investors comparatively higher bond yields, backed by a triple-A credit rating.

Last year's slide in the value of the Aussie dollar against its U.S. counterpart was due partly to expectations that the U.S. and European economies would recover more quickly this year than has transpired.

The Australian dollar often moves in sync with commodity prices. But it hasn't tracked commodity-price falls so far this year, further pinching the earnings of exporters, including mining companies and manufacturers.

"We have seen lower commodity prices, which would often be associated with a lower currency," Mr. Edwards said. "In our terms, of course, we have record-low interest rates. Our problem is that they are zero in the U.S., the U.K. and Japan."

Earlier Tuesday, the central bank said in minutes of its July 1 policy meeting that interest rates are set to remain low as economic growth remains patchy, and that the Australian dollar's level remains a headwind for the economy.

Australia's benchmark cash rate has been on hold at a record-low 2.5% since August last year to cushion the resource-rich economy against a fading mining-investment boom that has been the mainstay of economic growth for the past decade. DJ

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