The Aussie Dollar Has Broken Below 85 US Cents, Another Landmark In Its Extraordinary Story

Photo: Getty / File

When the worm turns the worm turns – such is the nature of markets.

After 31 years with a free-floating exchange rate and light intervention, the RBA knows the markets better than most. It is now artfully playing the game of walking the Aussie down amidst changed expectations of Chinese and Australian growth and of a more nuanced Australian interest rate outlook which has the lightest of biases toward easing.

So it’s no surprise that as the NAB downgraded its Aussie dollar forecast to 80 cents, when BoAML thinks 78 cents is a good bet, and when Credit Suisse says the RBA is going to cut rates to 1.50% and the Aussie will be crushed, that the sellers are lining up.

To put this move in context, the Aussie has not been this low since the European crisis in 2010. But the real market moving, and perhaps self fulfilling element of this shift below 85 cents, is that this is the level RBA Governor Glenn Stevens first identified when jawboning the Aussie lower in 2013.

A break of 85 cents, an area associated with the Euro crisis low and Glenn Stevens initial thoughts on value, is a signal that the market is no longer in love with the Aussie. Rather it is now lining up with the RBA and others who believe the Australian economy needs a lower dollar.

A technical break like this doesn’t guarantee anything on price in future but the bears are in charge right now and that makes Australia more competitive in sectors like education and tourism where the potential upside is significant. The federal government and Joe Hockey in particular will take note.

It’s back above 85 cents this morning at 0.8540 but last night’s price action suggests the worm has turned and the Aussie dollar is headed lower.

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