15 Nov 2013
Flash: RBA to keep successfully jawboning $A - HSBC
FXstreet.com (Barcelona) - Despite the RBA has publicly expressed concern over the hefty levels of the Australian Dollar, noting that further rate cuts should not be ruled out, HSBC Economists think this option is unlikely.
Key Quotes
"Cutting interest rates further seems somewhat unpalatable, because low rates are already getting traction and even lower interest rates could risk over inflating the housing market. Instead, the RBA will attempt to jawbone the AUD lower."
"The AUD is a classic risk currency that still needs US flows and therefore earlier tapering could put some downward pressure on the AUD and help facilitate further rebalancing. However, with the disruptions from the US fiscal debacle, tapering is now viewed to be delayed until 2014. Therefore, at this stage the most likely policy tool to be applied is jawboning the currency lower."
"Further, following the November rate announcement, RBA’s Assistant Governor Debelle gave commentary at the IMF in
Washington suggesting that ‘in Australia’s case, an exchange rate appreciation that is not in line with the fundamentals, if persistent enough, can lead to Dutch Disease’."
"In all, we believe the RBA’s strategy of talking the currency down will prove to be effective for now. With labour market still weak and the Central Bank projecting it to remain on the back foot throughout 2014 the economy is still looking fragile. This as well as generally choppy global economic outlook and soft commodity prices, should also keep pointing towards weaker AUD".
Key Quotes
"Cutting interest rates further seems somewhat unpalatable, because low rates are already getting traction and even lower interest rates could risk over inflating the housing market. Instead, the RBA will attempt to jawbone the AUD lower."
"The AUD is a classic risk currency that still needs US flows and therefore earlier tapering could put some downward pressure on the AUD and help facilitate further rebalancing. However, with the disruptions from the US fiscal debacle, tapering is now viewed to be delayed until 2014. Therefore, at this stage the most likely policy tool to be applied is jawboning the currency lower."
"Further, following the November rate announcement, RBA’s Assistant Governor Debelle gave commentary at the IMF in
Washington suggesting that ‘in Australia’s case, an exchange rate appreciation that is not in line with the fundamentals, if persistent enough, can lead to Dutch Disease’."
"In all, we believe the RBA’s strategy of talking the currency down will prove to be effective for now. With labour market still weak and the Central Bank projecting it to remain on the back foot throughout 2014 the economy is still looking fragile. This as well as generally choppy global economic outlook and soft commodity prices, should also keep pointing towards weaker AUD".