The RBA has surprised no one by holding rates at 2.25% for the second month in a row.
But that hasn’t stopped forex traders taking the Aussie higher as a result of the decision to hold rates steady.
At 0.7686 the Aussie is up more than a cent from the lows earlier today.
That’s not what the RBA wants given that they explicitly mentioned the Aussie dollars strength in the Governor’s statement.
The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems likely, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy.
But context is everything.
So it’s worth noting that the Aussie dollar is around its long-run average since the 1983 float at current levels. So, while the RBA wants the Aussie dollar lower, one day’s rally of one cent — even if it becomes two cents — is nothing in the grand scheme of things.
Rather the trend to a lower Aussie is in train, there is little fresh evidence in Australia or any asset market on the planet that suggests a new trend of sustained Aussie dollar strength is abot to begin. That means global investors are likely to heed the RBA’s words, and the terms of trade (and iron ore’s) price moves and keep selling the dollar.
The RBA will continue to be patient, and expect that when the Fed starts tightening the US dollar will naturally push the Aussie dollar lower.