The Aussie dollar sits at 0.9348 this morning.
That’s a long way from this week’s high of 0.9505 and around one full cent lower than the price just 24 hours ago.
Key to the fall of course was RBA governor Glenn Stevens’ verbal intervention yesterday where he told traders in no uncertain terms that when it comes to the Aussie dollar “investors are under-estimating the likelihood of a significant fall in the Australian dollar at some point”.
David Gruen, a very senior economic adviser to the Australian Government and former RBA offical, also weighed in to the debate saying the Aussie needed to fall significantly.
Equally however, last night’s massive US non-farm payroll print of 288,000 jobs in May and an upward revision to April of 304,000 sent the US dollar bulls rampaging through currency markets with the Aussie, euro, yen, Kiwi and Canadian dollars all weaker.
But while many highlight Stevens’ intervention yesterday as a “surprise”, it was not out of context of previous comments when the Aussie was up near 95 cents or the recent run of weak economic data in Australia. Yesterday’s weaker-than-expected retail sales just proved a timely reminder that markets needed a reappraisal of the outlook for the Australian economy.
This is a rethink that should have happened some time ago, given the weak data releases recently. The chart below highlights the fall in the Citibank Economic Surprise Index for Australia from recent highs and then below the zero line:
So the Aussie’s fall is a combination of a fundamental shift in economic outlook between Australia and the US and some beautifully timed words from the RBA governor. Stevens will be pleased with this week’s reversal.
But while the Aussie is off one-and-a-half cents from this week’s high, it needs to break below 93 cents for the bears to get busy and the bulls to start to wonder.
92 cents looks like the big level to watch in the weeks ahead.
Disclaimer: Greg McKenna took profits on his small short Aussie Dollar position overnight and at time of publication held no position in the AUDUSD.