The Aussie dollar is crumbling after RBA governor Glenn Stevens opened the door for more rate cuts

Reserve Bank of Australia governor Glenn Stevens. Picture: Bloomberg

The Australian dollar is back below 72 cents after traders saw the recommitment by RBA governor Glenn Stevens to the inflation targeting regime, and the 2-3% band, as confirmation the RBA will again lower rates in order to drive inflation higher.

In remarks at the Trans-Tasman Business Circle boardroom briefing in Sydney, Stevens said the RBA is “very committed to the inflation targeting monetary policy framework”.

And, even though he also reiterated recent comments by former governor Ian Macfarlane and current board member John Edwards that the RBA does not have a mechanical reaction function to rates outside – at present below – the RBA’s 2-3% band by saying “medium term inflation targeting is not rigid and does not demand knee jerk reaction from our part”, traders are acting as though the door to another cut is still wide open.

Stevens also said the Aussie is “doing what it is expected to do” by acting as “shock absorber” for the economy.

So he’ll be pleased that it’s back below 72 cents with many traders now expecting it to fall toward the the lows of the year at 0.6850. That will provide a significant boost to overall economic growth which Stevens said was “continuing” even if stronger would be better.

Also adding a little fuel to the Aussie’s fall will be the governor’s assertion that China’s “economic transition is on a scale that no one has ever done before” which means the end result is still uncertain. He also noted that demand for housing finance was slowing.

Both of these add to the notion at least one more cut is coming.

The dollar has found some support above recent lows – all eyes are now on whether or not 0.7170 can hold.

AUDUSD 5 minute Chart (MT4, AxiTrader)

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