Glenn Stevens skips the jawbone, dollar shoots higher

Photo by Ethan Miller/Getty Images

Pushing aside rampant speculation as to whether he would, or not, RBA governor Glenn Stevens has resisted the temptation to place downward pressure on the Australian dollar this afternoon, instead using the opportunity to talk up the recent performance of the Australian economy.

In prepared remarks to the ASIC annual forum in Sydney, Stevens delivered a glass half full assessment of the recent performance of the Australian economy, suggesting that it seemed to have been picking up steam heading into 2016.

“Information we have received recently suggests that the Australian economy was growing at a respectable pace in the second half of last year,” said Stevens.

“The national accounts data released this month showed that the economy expanded by 3 per cent over 2015, a bit better than we estimated at the time of our most recent Statement on Monetary Policy in February. This outcome seems to fit together with other pieces of information such as business surveys and labour market data, which improved noticeably over the course of 2015.”

While the economy started the year at “a good starting point”, in his opinion, Stevens suggested that both monetary and fiscal policy could still be called upon should the need arise.

“Even with interest rates at already low levels, and public debt higher than it was, there would, in the event of a serious economic downturn, be more room to ease both monetary and fiscal policy than in many, indeed most, other countries,” said Stevens.

Following the speech, Stevens’ took a series of questions related solely to the Australian dollar, joking with the audience that it was the only thing people wanted to ask about.

However, if people were looking for a full-scale assault on the Aussie from the governor, they would have been disappointed.

“Unless you think that the commodity price trend now is different and we are headed back to a world of considerably higher prices for an extended period and we think that the Fed is never going to lift rates, it’s not clear that the situation will warrant a much higher exchange rate than this and there is a risk actually that the currency may be getting a bit ahead of itself,” said Stevens.

He also added that it was hard to find a central bank at present that would prefer a higher currency.

If that was an attempt at jawboning, it was akin to a wet lettuce leaf. You might deem it to be jawboning-lite.

As a consequence the Australian dollar has shot higher in response. As at 5.20pm AEDT, the AUD/USD buys .7615, up 0.51% for the session.