The dollar's coming of age as a global reserve currency has resulted in a $200 billion buying spree by central banks and sovereign wealth funds since the global financial crisis, adding an estimated US6c-US8c to the dollar's value, according to new analysis.
And senior executives at US investment bank JP Morgan say the new structural allocations to cash and fixed-income assets, such as bonds, meant there was a natural flow of buying when the currency weakened in order to maintain portfolio weightings.
This may mean the old adage that the Australian dollar climbs the stairs and goes down in an elevator may not hold as much weight as previously.
"This has important implications for monetary policy," JP Morgan interest rate strategist Sally Auld said.
"If the currency remains resilient despite a weakening in the external environment, then this places a greater burden on monetary policy to facilitate trend growth and inflation outcomes."
The JP Morgan figures are a rare, authoritative insight into the impact of the dollar's growing status as a global reserve currency.
The International Monetary Fund currently groups Australia with "other currencies" in its quarterly survey of central bank foreign exchange holdings.
That is scheduled to change soon, with holdings of assets in the Australian and Canadian currencies to be broken out sometime this year.
JP Morgan's head of fixed income for Australia and New Zealand Jeff Herbert-Smith said there were about 70 central banks and sovereign wealth funds participating in the local bond market.
The Australian has previously reported via Reserve Bank documents obtained through Freedom of Information rules that at least 34 central banks have been buying Australian dollar assets.
He said the dollar had become an Asian reserve currency after the region's economic and financial crisis in the late 1990s.
With the exception of a few large central banks, the currency had then become a global reserve currency in 2007.
Mr Herbert-Smith reckoned that official reserve managers now held $300bn-$330bn of Australian dollar assets, up from about $100bn-$120bn in 2007.
Of the current figure, there was about $240bn in central-bank foreign currency reserves, with the remainder being held by sovereign wealth funds.
According to Mr Herbert-Smith, the implementation phase of the dollar's higher weighting in asset portfolios had resulted in a US6c-US8c rise in the value of the dollar over 2009-13.
The dollar's potency was underscored last year when The Wall Street Journal reported that Germany's powerful Bundesbank was considering adding Australian dollar assets to its foreign currency holdings.
The move was seen as a tribute to the strength of the economy and the nation's reputation as a safe haven for investors, due in large part to the commodities boom.
The dollar is now the seventh most traded currency in the world and the fourth-ranked cross with the greenback, according to the Australian Foreign Exchange Committee.
Ms Auld said one of the important consequences of the dollar being a reserve currency was the potential for buy-side orders as the currency weakened against the US dollar or euro.
"As the dollar falls, official reserve managers need to rebalance their portfolios," she said. "They execute this first by buying the dollar and then buying Australian dollar bonds.
"This dynamic implies that there is now a natural buy-side flow in the foreign exchange market which would not have existed to the same extent had the dollar not become a global reserve currency."
The proportion of Australian government debt owned by foreigners peaked around the middle of last year and has since fallen to about 68 per cent.
However, the amount of debt issued has risen, so the dollar value of foreign-owned debt has stayed about the same.
Michael Bath, director of financial risk at the Australian Office of Financial Management, said the dollar had become a core part of asset allocation for central bank reserve managers.
"The trend has become more prevalent as the stock of bonds has grown, because reserve managers are concerned about liquidity," Mr Bath said.
