The Australian dollar rallied 0.6% a little while ago and was briefly above 74 cents after Japanese officials joined their Swiss counterparts in suggesting co-ordinated central bank intervention if Britain votes to leave the EU on June 23.
Reuters is reporting that sources close to the bank of Japan say it is ready to “offer US dollar funding with 6 other central banks if markets are roiled by the Brexit vote”.
My guess on which banks that would be are the Fed, ECB, Swiss National Bank, Bank of Canada, BoE, and Bank of China. No doubt our own central bank – the RBA – would have notification and might join the party should the pound and forex markets more broadly need stabilisation.
The Reuters headline comes after Japanese finance minister Taro Aso declined to comment on intervention but used the words his predecessors have before doing just that. Aso said he was very concerned about one-sided speculative moves in forex markets.
The AUDUSD is slipping back a little now because it is a little pre-emptive for traders to sell the yen and buy Aussie, sterling, Kiwi, CAD, and euro when we are still a week away from the EU decision is announced. But the move in Asia this morning reflects the reality that there is a very strong chance central banks do indeed intervene to stabilise the pound, and the yen, if the forex market becomes dysfunctional or sterling falls too far.
This is exactly the role central banks have played on multiple occasions and in multiple crises.
How you judge exactly what too far or too fast will be determined at the time by the central banks working together.
But for now the Aussie and other currencies are higher and the yen lower. Here’s the AUDUSD: