The Aussie dollar has been under pressure since early September and this morning traded its lowest level since February 4 of 0.8815 on the back of central bank comments.
Unusually though it was not the RBA Governor who talked the Aussie down but rather the RBNZ Governor, Graham Wheeler, who jawboned the Kiwi below 80 cents against the US dollar for a short time.
Why the currency traders listen to Wheller rather than Stevens is at first hard to reconcile.
Wheeler said “we expect a significant further depreciation of the exchange rate,” and that “past experience suggests that when the New Zealand dollar begins depreciating from an unjustified and unsustainable level, the ultimate adjustment can be large”.
Granted that is slightly more aggressive than Stevens “high by historical standards” and more like comments last year when Stevens said the Aussie should head into the mid-80s.
But why sell the Aussie?
The answer is likely two fold.
On the one hand, Wheeler has highlighted that the Kiwi is too high and as a commodity currency implied the Aussie is as well. Even the Loonie, the Canadian dollar, was sold on the comments.
The second point to note is that the Kiwi attracts some very large positions which, because it is not as liquid as the Aussie dollar, sometimes sees the Aussie become a proxy for Kiwi selling if a decent size trade needs to be booked.
Either way, the Aussie’s brief foray above the September down trend line has been reversed and Glenn Stevens and his colleagues at the RBA won’t be displeased at all.