This week the Reserve Bank cut the cash rate to a record low of 2.75%, leaving financial experts wondering whether any amount of fiscal policy can curtail Australia’s high dollar.
Japan has embarked on a massive money-printing spree, injecting $63.7 billion a month in an attempt to resuscitate its economy. The US is also running its own quantitative easy program, buying back bonds work $US85 billion a month.
A lot of experts have now questioned the fiscal merit of these shots in the so-called currency war, in line with Australia’s own attempts to ring in its currency, which would help boost domestic exports.
“If everyone tries to undermine the value of their currency with monetary policy, the results will not be good,” famous economist John Taylor told The Australian.
Taylor, in today’s Aus, warned central banks against undermining their own currencies, saying it could cause commodity and asset price bubbles.
HSBC head of Asia Pacific rates Andrew de Silva told The Australian the affect of the RBA’s rates call would be softened by Japan’s huge economic experiment.
“The RBA can put up one or two barriers in the face of global forces but ultimately this policy move can only be about smoothing a trend rather than changing it,” he said.
According to an article today by Vensa Poljak at the AFR, there isn’t much the RBA can do the lower the value of the Australian dollar.
Former Perpetual and 452 Capital fund manager Peter Morgan told her this: “First, you’ve got a federal government that in economic terms is mismanaging the economy and causing all sorts of problems with regards to confidence.
“The Reserve Bank is having to act because of the mistakes of the government.”
Poljak writes that basically, our dollar’s simply caught up in the global ‘currency war’.
“Right now I doubt that even a 100 basis point cut in the RBA’s policy rate would move the $A substantially lower over the medium term,” UBS interest rate strategist Matthew Johnson is quoted as saying.
You could always just short it though. Earlier this week media reports suggested that George Soros made millions on a bet the dollar would fall, shorting it through as many as three brokerages in Asia.
Now, according to Bloomberg, one of his lieutenants Stanley Druckenmiller is suggesting others follow suit.
“We think the Australian dollar will come down and will come down hard,” Druckemiller said. “Its expensive.”