It’s looking like another big day for the aussie with the release of the RBA’s minutes from its policy meeting earlier this month at 0030GMT and a speech by Governor Stevens this evening. AUDUSD has been holding in a medium-term upward since bottoming out around 0.8540 earlier this month.
This recent retracement in AUDUSD may be enough to drive the RBA towards a more dovish path regarding the aussie. In fact, there may even be some dovish undertones to this month’s meeting minutes. The bank used more forceful language regarding the AUD than it has been previously in its statement following its policy decision earlier this month. Members have continuously noted this month that the commodity currency’s present value is unjustified given the recent sell-off in commodity prices, adding that it is above estimates of fundamental value.
The reason the RBA is becoming more vocal about the exchange rate, despite last quarter’s massive sell-off, is the underlying softness in the Australian economy and uncertain global economic conditions. With diminishing mining investment and lack of economic activity across the broader economy, it’s unclear where growth is going to come from. The resulting inevitable below trend-growth performance of the economy should keep consumer prices in check, assuming housing prices don’t continue to spiral out of control.
The bank believes that a weaker exchange rate will soften the blow to trade exposed sectors (it’s worth noting that importers are already struggling under a weaker AUD but Australia is an export based economy). However, with many other major central banks throughout the world also attempting to weaken their respective exchange rates against a backdrop of soft global economic activity the ultimate impact of a softer AUD is diminished.
The RBA eyes the global economy and the aussie
The time may come when the RBA is forced to cut the official cash rate further in order to further support economic activity, but this greatly depends on the path of Australian dollar and the outlook for the global economy. At present the RBA is happy to remain in wait-and-see mode as it assesses the impact of prior easing on the economy and closely watches developments offshore and their impact on the AUD. The uncertainty about the path of monetary policy in key parts of the world is dominating investor sentiment in the FX space.
Source: FOREX.com
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