29 Oct 2013
AUD/USD strength may be out of the RBA's hands
FXstreet.com (London) - The Aussie dollar came under pressure overnight after Reserve Bank of Australia governor Glenn Stevens expressed concern over the strength of the currency.
Speaking at an investment conference, Stevens warned that recent Aussie dollar strength built on top of levels that were already unusually high.
Specifically addressing foreign exchange investors, he cautioned that: ‘‘It seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today.’’
The RBA has maintained its cash rate at a record-low 2.5 percent, but Stevens tried to play down concerns over the inflationary effects of the dovish central bank policy, especially within the Australian housing market.
“Some commentators have taken the view that the property market dynamics are worrying. My own view, thus far, has been that some rise in housing prices is part of the normal cyclical dynamic, that it improves the incentive to build, and that a price rise reversing an earlier decline probably isn't something to complain about too quickly."
The power of the Fed
While the RBA governor may wish to see some Aussie dollar weakness to help support exports, he is likely to be at the mercy of the Federal Reserve. The Fed begins its two-day meeting today when it will almost certainly maintain current monetary policy. With any tapering of the Fed’s asset purchase programme unlikely to happen until at least March 2014, the Aussie dollar will receive support from carry demand, with cheap US dollars taking advantage of higher AUD yields.
AUD/USD is down 0.38 percent to USD0.9510.
Speaking at an investment conference, Stevens warned that recent Aussie dollar strength built on top of levels that were already unusually high.
Specifically addressing foreign exchange investors, he cautioned that: ‘‘It seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today.’’
The RBA has maintained its cash rate at a record-low 2.5 percent, but Stevens tried to play down concerns over the inflationary effects of the dovish central bank policy, especially within the Australian housing market.
“Some commentators have taken the view that the property market dynamics are worrying. My own view, thus far, has been that some rise in housing prices is part of the normal cyclical dynamic, that it improves the incentive to build, and that a price rise reversing an earlier decline probably isn't something to complain about too quickly."
The power of the Fed
While the RBA governor may wish to see some Aussie dollar weakness to help support exports, he is likely to be at the mercy of the Federal Reserve. The Fed begins its two-day meeting today when it will almost certainly maintain current monetary policy. With any tapering of the Fed’s asset purchase programme unlikely to happen until at least March 2014, the Aussie dollar will receive support from carry demand, with cheap US dollars taking advantage of higher AUD yields.
AUD/USD is down 0.38 percent to USD0.9510.