The RBA has made it clear for more than a year now that it wants the Aussie dollar lower.
It believes it should be lower based on the fall in terms of trade but perhaps it won’t get there until the US begins raising rates.
This was the theme that permeated RBA assistant governor Christopher Kent’s address to the Australian Business Economists at lunchtime today.
The Federal Reserve has now ended the extraordinary expansion of its balance sheet and markets are focused on the question of when the Fed might begin the process of raising its policy rate. This is generally anticipated to be sometime around the middle of next year. Once that process is seen to be starting in earnest (or at least much closer to starting), it may well lead to a further appreciation of the US dollar. The flipside of this would be a further depreciation of the Australian dollar, which remains above most estimates of its fundamental value, particularly given the substantial declines in commodity prices over the course of this year.
But in question time he went further and said that the RBA has not ruled out intervention in the Aussie dollar market.
It sent the Aussie into a tail spin dropping around half a cent in 15 minutes.
In many ways this will now be the key takeaway from what has been a speech a fairly optimistic speech from Kent.
But the key highlights, and ones which add weight to the Aussie dollars fall are that the positive outlook in the years ahead is based on two main hopes.
One is the fall in the Aussie dollar and the other is that households and business will eventually start to spend again.
“Very low interest rates are working to support growth of household expenditure. In time, growth of household demand and the impetus to domestic demand provided by the exchange rate depreciation we have seen since early 2013 are expected to spur non-mining business investment,” Kent said.
The most dangerous words in all of markets and economics are “this time it’s different” so the RBA has history on its side.
But there is something going on in the Australian economy, abstract housing and animal spirits are sorely lacking. Unless or until they return, the period of sub-par growth the Australian economy has been undergoing will continue for the foreseeable future.
Business Insider Emails & Alerts
Site highlights each day to your inbox.