The euro hit 1.38 overnight as the move away from the US dollar continues in earnest. The pound is up above 1.62 and even the Yen is gaining ground on the US dollar.
Likewise, the Aussie dollar is up 8 cents from the lows a couple of months back at 96 cents this morning.
But none of this stops the RBA from continuing to assert that a lower Aussie dollar will help fix the Australian economy. Yesterday RBA Deputy Governor Phile Lowe continued to pin his and the RBA’s hopes on a lower Aussie:
Of course, none of this is locked in. But, together, a lower value of the Australian dollar, an improvement in business confidence and low interest rates provide the basis for our outlook of a gradual lift in the non-mining economy over the next couple of years.
It’s a big risk to their forecast. It’s also a big risk to the Treasury’s growth and income forecast.
Today’s chart is from the NAB’s FX Strategy team earlier this week and they say that the lack of taper is undermining the US dollar and that their model which accounts for Quantitative Easing – the Fed’s bond buying program – has an implied fair value for the Australian dollar at the moment of 99 cents.
Like the RBA, the NAB FX Strategy team still thinks the Aussie will eventually fall but has upgraded its forecasts to 95 cents at year-end from its previous 92 cent forecasts and anticipates the Aussie will end 2014 at 84 cents.
The RBA will be hoping they are right.
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