The haruspices will be waiting for the Reserve Bank of Australia’s statement of monetary policy today, the entrails set to be examined for insights on the Australian dollar after its super-weird week.
In overnight trading the AUD took a shellacking on the currency markets, with investors plunging into the greenback after good jobs numbers out of the US and some signs that the Fed can see an end to its round of quantitative easing.
So this morning the Australian dollar is at an 11-month low and heading towards parity with the US dollar. AMP Capital’s Shane Oliver observed:
Looks like $A has decisively broken below the 1.02-1.06 range that has prevailed since July. Prob headed lower. Is whats needed for Aust now
— Shane Oliver (@ShaneOliverAMP) May 9, 2013
Industry has pinned disappointing results in a range of areas — especially the critical resources sector — on the high Australian dollar, which makes exports less competitive and dents revenues, in turn acting as a handbrake on tax receipts for a government that has a number of costly initiatives in the pipeline.
As the chart below shows the dollar was all over the place this week – the first precipitous fall coming at 2.30pm Sydney time on Tuesday when the RBA announced a decision to cut official interest rates by 25 basis points, catching the market on the hop.
(There was a rumour that the grand master of currency trading George Soros had placed a $1 billion bet that the AUD would fall, with one report speculating he could have made up to $60 million with three bets.)
Then yesterday morning on Australia’s east coast there were stories in the press about the futility of the central bank’s attempts to devalue the currency. Both The Australian and the AFR had stories on the front page about how hard it was to budge the dollar from its stubbornly high perch against the greenback.
But just as investors were digesting this news along with their cornflakes in Sydney, over in New York at one of the world’s highest-profile investor conferences billionaire trader Stanley Druckenmiller was telling the room to short the dollar. “We think the Australian dollar… will come down and will come down hard,” he said at the Ira Sohn conference.
Now Druckenmiller is one of George Soros’s key advisers, which added some weight to the rumours that Soros was behind the big short on the Aussie earlier in the week. (There was also an element of mind games in someone like Druckenmiller telling a room full of investors to take a bet one way or the other — rather like a giant game of paper, rock, scissors.)
If Druckenmiller had some short money on the dollar he would have done well last night.
It looks like the RBA’s rate cut had just an initial, fairly weak, impact on the dollar but now external forces — signs of the fundamentals pointing towards some certainty in the US economy and accompanying shifts in currency traders’ outlooks — are starting to build momentun behind the RBA’s attempt to weaken the currency.
But the week’s not over yet.