CHART OF THE DAY: Mike Smith's Bad News For The RBA On The Aussie Dollar

Mike Smith / ANZ

ANZ boss Mike Smith was out over the weekend with some bad news for RBA governor Glenn Stevens, who clearly wants the Aussie dollar substantially lower than the 97.5 cents or even the 95 cents we saw last week.

Talking on the ABC’s Inside Business program, Smith said

It’s unlikely we’ll see a huge reduction or a major reduction in the Aussie dollar’s strength until there is a tapering in the US… It’s not so much the strength of the Aussie dollar, it’s the strength of the US dollar. As the US dollar strengthens, we’ll start to see the Aussie come off a bit.

As true as that is, the RBA and its governor are not happy at bearing the brunt of the US Federal Reserve’s monetary policy and the distortion it is causing in Foreign Exchange markets.

Last week, Stevens had a dramatic and forceful intervention in Forex markets, telling buyers that at some point the Aussie dollar would be “materially” lower. By week’s end it had dropped almost 2 cents from its high, closing the week at 0.9422.

But that’s not exactly material. Not yet, anyway.

The good news might be that the US dollar has turned – if only tentatively.

Last week, the euro fell heavily after the US FOMC was a bit more aggressive about the taper. It became clear that dis-inflation and high unemployment mean the ECB might need to cut rates and sterling was also back below 1.60.

Even the Aussie dollar’s 3 cent reversal off the October high is important in this possible turn in the Big Dollar.

Chart courtesy of IncredibleCharts.com

The signs are there that the US dollar might be turning, but Mike Smith reckons until the taper comes, the Aussie will be strong.

Australian business hopes not.

You can follow Greg McKenna on Twitter.

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