The RBA wants the Aussie dollar to go lower. That’s because it knows that a lower currency can stimulate the economy in ways monetary policy alone can not. The RBA also wants the Aussie dollar lower because it will reach areas, such as tourism and educational services, that monetary policy often barely touches.
However Westpac suggests in a note today that the markets are going to continue to confound the RBA by staying stronger than many believe and expect.
Sean callow said that the “AUD/USD should trade a rough 0.75-0.78 range” over a “multi-week” timeframe with support from changed expectations of a Fed tightening and japanese buying keeping the 75 cent region solid.
The RBA won’t like that, but at 0.7675 this afternoon, the dollar is just 0.0033 higher than the long-run average daily close since it was floated 32 years ago in December 1983.
That suggests that, leaving aside short-term coincident “fair value” models that the fabric of the economy can handle an Aussie sitting where it is today.
That’s not to say that the economy, as the RBA rightly points out, can’t benefit from a lower Aussie. But notions that the Aussie is high are just that – notions.