The mood among central banks is shifting, including at the Reserve Bank of Australia (RBA), and investors should be listening.
So says Kit Juckes, chief global FX strategist at Societe Generale, who says investors should ignore sceptics who have become to accustomed to monetary policy settings that, in their opinion, will be “low forever”.
This, says Juckes, is preventing some from seeing an important turning point in monetary policy settings globally.
“The sceptics will be out in force in the days ahead. However, this is just another of those ‘unsurprising surprises’ we’ve been writing about,” he says.
“The world is less in need of triage and intensive care from central bankers than it was, and more of them are thinking about how, and when, to set out on the road to normalisation. Markets, priced for ‘low for ever’, are being forced to rethink too, and after the Bank of Canada, now it’s the RBA which is in the spotlight.”
The “spotlight” Juckes refers to was the release of the RBA’s July meeting minutes yesterday, something widely perceived to be far more confident than the tone in the bank’s monetary policy statement released two weeks earlier.
That saw the Aussie dollar jump to a more than two-year high while government bond yields spiked, driven by increased speculation that the prospect of a rate hike is building.
According to Australian swaps pricing, markets are now see the prospect of a 25 basis point hike in the second quarter next year as a better then even money bet.
“It would be wrong to ignore the mood shift in markets,” said Juckes.
He says a pickup in investment, improving labour market conditions, an improving global backdrop, steady FX markets and rising equity indices globally point to an improving economic story for Australia.
As such, even with the strong gains in the Aussie dollar over the past couple of months, he still remains a fan.
“AUD/JPY, AUD/USD and AUD/NZD are all longs we like,” he says.