What
Glenn Stevens said yesterday was "a lower level of exchange rate is likely
to be needed to achieve balanced growth in the economy." He also said that
without a lower currency value business investment is going to struggle to get
moving. The bottom line is that the RBA is beginning to try and
"talk" the Aussie Dollar down.
If the
US Fed indicates that it will not begin tapering in early 2014 the RBA could
take the extremely unusual step in the coming months of intervening on the
Aussie Dollar to try and stop its rise. This would mean actively selling Aussie
Dollars to try and push the currency down along with another interest rate cut.
On the
one hand the housing market in Australia is picking up and doing reasonably
well, on the other hand the currency value is stifling domestic growth and
business investment. Stevens said in his statement yesterday that
"considerable uncertainty surrounds this outlook," referring to the
non mining sectors of the economy improving at a sustainable rate.
Our
views have not changed post the RBA statement yesterday; the Aussie dollar is
likely to remain stubbornly high whilst the US Fed continues to inject the
stimulus. This is the RBA's biggest problem, if it were not for the US $85
Billion a month being injected into the US economy my personal view is the
Aussie Dollar would be well under 0.90c. The market has a phrase that says,
"don't trade against the wishes of the Central Bank." The reality is
the US Fed is the real driver of the Aussie Dollar and not the local RBA.
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