The decline in the Australian dollar is "credit positive" for Australian banks, Moody's Investors Service said yesterday, citing improvements to asset quality, profits and liquidity.Moody's said the currency's decline "will help alleviate growing asset quality challenges and improve their funding [and also] provide currency translation benefits, and will boost the earnings of banks with significant offshore revenue streams, such as ANZ and Macquarie."The ratings agency said "a weaker Aussie will alleviate pressure building on Australian banks as a result of the country's economy undergoing a gradual shift, owing to the resource-sector investment boom moderating, and a question about whether non-mining exports, corporate investment and household consumption can mitigate that slowdown. "This exposes bank asset quality and profitability to material downside risks."Moody's said that Australia's flexible exchange rate "has historically served as an effective shock absorber, preventing the economy from entering recession.""A sustained weaker Aussie now will alleviate pressure on export-oriented sectors of the economy, such as tourism and manufacturing, and reduce the threat of banks' asset-quality deteriorating."It said "a weaker currency would also help banks with significant offshore operations, because a lower Aussie increases the value of revenues earned offshore after translation into local currency."A weaker Aussie also has funding benefits, Moody's said, given a large proportion of Australian banks' funding is denominated in foreign currencies and sourced from offshore wholesale markets. "Because the banks typically hedge their foreign currency issuance, a decline in the Aussie results in an in-the-money swap position and [this] leads to an inflow of collateral to Australian banks from their swap counterparties."Moody's said it estimated such inflows may be up to A$500 million for each one cent movement in the AUD/USD exchange rate for ANZ and NAB,  and more for Commonwealth Bank and Westpac."Although this does not present longer-term benefits as the collateral flows may reverse as the Aussie stabilises or rises, such inflows improve short-term liquidity," Moody's said.