Australian dollar is not invincible, but the RBA begins to factor in a structurally higher AUD into their estimates

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Category: Australian Dollar News

Written by Rob Samson

International Money Transfers at our sister site

"Our read-through of this is that they are beginning to build in a structurally higher AUD into their estimates" - Chris Walker at UBS.

The Australian dollar (Currency:AUD) is not as invincible as we once thought, read yesterday's take on this powerful currency's performance.

A quick look at the spots shows the pound to Australian dollar exchange rate to be 0.29 pct higher at 1.4828.

The Australian dollar to US dollar rate is 0.52 pct in the red at 1.0525.


Chris Walker, FX Strategist at UBS talks us through the latest events impacting on the Australian currency:

"AUD came under pressure with the data releases, though the RBA gave a more hawkish assessment than market expectations, revising their end-2012 GDP to 3.5 pct from 3.0 pct.

"Underlying inflation by end-2012 has also been lifted to 2.5% from 2.25% which UBS economics views as a hawkish move, assuming they haven’t changed their assessment of carbon impact.

"The policy statement also said that 'it is possible that the persistently high level of the exchange rate may be more contractionary for the economy than historical relationships suggest.'

"Our read-through of this is that they are beginning to build in a structurally higher AUD into their estimates (indeed their working forecast was raised to 1.06 versus the dollar), so they may allow this to do some of the modest tightening work for them. That is not to say the RBA needs to start hiking rates by any sense, but UBS economics views this statement as a signal that the RBA now sees underlying inflation as having troughed."

Over at Caxton FX Richard Driver believes that this morning's AUD weakness is in response to indications that the RBA is keen to ease on monetary policy:

"If there is one thing that spooks currency investors, it is indication of central bank intervention. There were hints of this in the Reserve bank of Australia’s quarterly monetary policy statement. The statement expressed concerns that the persistently strong AUD could be a drag on Australian growth. That said, the RBA revised GDP expectations for this year up to an impressive 3.5 pct, from 3.0 pct. Regardless, the market focused on the currency aspect."