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28 Jan 2015
There’s arguably no room for complacency on the AUD front – Rabobank
FXStreet (Barcelona) - Michel Every, Head of Financial Markets at Rabobank argues that AUD might still get dragged into the ongoing ‘currency wars’, explaining that RBA can’t afford to relax on the rates front with AUD still stronger on a trade weighted basis.
Key Quotes
“The RBA had long talked about a level of 0.75 as being more appropriate – so does that mean that the pressure on the Bank to ease interest rates is reduced due to the weaker currency? (and so, therefore, that the bond market is wrong?) Arguably not, for one reason: Australia has seen a much weaker currency, but so have many others (as Canada shows), and on a trade weighted (TWI) basis, AUD is actually stronger now than it was a year ago.”
“The RBA arguably can’t afford to relax on the rates front despite AUD having a ‘7’ handle. If it does nothing next month due to housing and the weighted median/trimmed mean CPI prints, and openly suggests that it feels AUD has now declined far enough for it to hold firm then – ironically – AUD might even rise again near-term. Of course, that would be even more the case if the US FOMC begins to send out more dovish signals today suggesting a later rate hike, as our US analyst Philip Marey believes is likely.”
“In that regard, Australia is arguably still going to get dragged into ongoing ‘currency wars’ – indeed, almost everyone is: it’s merely a choice between being a ‘loser’ (with a strong currency), or a ‘winner’ (with a weaker currency).”
Key Quotes
“The RBA had long talked about a level of 0.75 as being more appropriate – so does that mean that the pressure on the Bank to ease interest rates is reduced due to the weaker currency? (and so, therefore, that the bond market is wrong?) Arguably not, for one reason: Australia has seen a much weaker currency, but so have many others (as Canada shows), and on a trade weighted (TWI) basis, AUD is actually stronger now than it was a year ago.”
“The RBA arguably can’t afford to relax on the rates front despite AUD having a ‘7’ handle. If it does nothing next month due to housing and the weighted median/trimmed mean CPI prints, and openly suggests that it feels AUD has now declined far enough for it to hold firm then – ironically – AUD might even rise again near-term. Of course, that would be even more the case if the US FOMC begins to send out more dovish signals today suggesting a later rate hike, as our US analyst Philip Marey believes is likely.”
“In that regard, Australia is arguably still going to get dragged into ongoing ‘currency wars’ – indeed, almost everyone is: it’s merely a choice between being a ‘loser’ (with a strong currency), or a ‘winner’ (with a weaker currency).”