The RBA joined the currency war today. As hyperbolic as this may sound it’s clear that having been the good central banker citizen and let the Aussie drift and persist above $1, then linger in the 90 cents region, the RBA has had enough and wants the Aussie lower.
Today’s rate cut, the first in 18 months, saw the RBA downgrade its growth and inflation outlook, and signal that it wants a lower Aussie dollar – substantially, it seems.
So against this backdrop, with the AUDUSD down around 1.5 cents from where it was just before the release of the statement at 0.7663, companies all over Australia will be asking forex strategists how far the Aussie can fall.
For some – exporters – a lower Aussie is the gift that keeps on giving. But for others who import goods, its can crush their business. Hopefully their advisers have them covered with forwards and options.
Most companies will be ready, and indeed expecting, a fall into the mid to low 70 region. But this chart suggests the Aussie dollar is in fact headed for a full round turn, even back towards the GFC lows.
That could have it back towards around 60 cents. This is a longer-term chance with a medium probability, rather than a call, but there you have it.
In all my years in markets there is one golden rule for the Aussie dollar I hold dear. It’s this: when traders and investors give up on the Aussie (which they haven’t yet, but might) as Aussie 2 and 10-year bonds continue to rally, then the reason to hold Aussie disappears and it falls out of bed because buying evaporates.