Week In FX Asia – RBA’s Jawboning Not Helping Yet

Governor Stevens at the Reserve Bank of Australia is having a tough go of it recently. Again, and for second time this week, Governor Stevens caused the biggest ripple in the currency markets in an otherwise quiet pre-NFP trading session. Speaking before the House of Representatives of Economic Committee, Stevens reiterated that Aussie policy makers saw the $0.90 as a critical threshold where the AUD becomes too high.

Earlier in the week the RBA left its cash rate target unchanged at a record low +2.5% as expected, but saw its own currency value too high by “historic standards.” Last years RBA jawboning saw the commodity and interest rate sensitive currency amongst the worst performers in the developed currency category – for 2013 the AUD fell -15% outright. According to policy makers, the decline in the exchange rate to date will obviously assist in achieving balanced growth in the economy. Obviously the reappearance of negative currency rhetoric should be putting the currency under all sorts of pressure, but with this week’s stronger retail sales print (+1.2% vs. +0.5%) has been making Steven efforts that much harder.

Governor Stevens further acknowledged on Friday that wage growth has slowed and unemployment rate will edge still higher yet, but also affirmed there is no need to lower rates at this time, expressing some more concern about the dangers of overheating property markets. The Governor also noted the recent GDP data does not change the RBA’s assessment that domestic economy is running below trend.

With interest rates at record lows, the RBA has been trying to engineer a fall in the currency to further assist exporters, and support economic growth. For now the bears can only cower as risk bulls take the lead – patience remains a virtue!

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