The Aus dollar exchange rate complex (AUD) maintains its heavy tone with the rate falling from 0.8176 against the US dollar at the start of 2015 to 0.7809 where we see it at the present time.
The decline in the Aussie against the greenback has in turn resulted in falls against other majors such as the pound sterling and NZ dollar.
The AUD/USD has however formed a base for the time being – the exchange rate looks reluctant to fall lower than 0.77 at present.
This stubbornness will not be welcomed at the Reserve Bank of Australia argue the team at Barclays.
According to Barclays analyst Kieran Davies the board at the RBA still wants a lower exchange rate.
The board communicated at their February meeting that the exchange rate was still overvalued and noted that “future exchange rate movements would be affected by market expectations for monetary policy, both domestically and abroad”.
This suggests to hat the round of easing by other central banks earlier this year was an important influence on the February rate cut.
“Our version of the RBA’s fair value model suggests that the real exchange rate is now close to fair value, although history shows that the currency regularly overshoots,” says Davies.
The board thought a “a lower exchange rate was likely to be needed to achieve balanced growth in the economy”, and Barclays see sustained relief on that front with their FX strategy team forecasting the currency to fall to 75 US cents this year.
No More Rate Cuts Ahead
The RBA board minutes for the February meeting revealed that the central bank preferred cutting rates in February over March, so it could offer more detail on its action in Statement on Monetary Policy.
Will the RBA put the boot on the Aus exchange rate further by announcing another rate cut?
Not so argue Barclays.
“The RBA did not signal a quick follow-up cut. Past experience has been that the RBA often cuts rates in quick succession, although we think that current circumstances are different.
“In past episodes, the RBA was quickly trying to turn from tight policy to easy policy, whereas the starting point for the February rate cut was an already record low cash rate.
“Consequently, we still expect the next rate cut in May, although we acknowledge the risk that the RBA moves sooner.”
Upcoming key events for the Aussie dollar:
· 25 Feb – Wage price index, Q4
· 26 Feb – Capex survey, Q4
· 3 Mar – RBA cash rate decision
· 4 Mar – GDP, Q4
· 5 Mar – RBA Deputy Governor Lowe speaks at an economics conference (Sydney, 12:30pm)
· 11 Mar – RBA Assistant Governor (Economics) Kent speaks (Hobart, 9:05am)
· 12 Mar - Employment and unemployment, Feb
· 16 Mar – RBA Assistant Governor (Financial markets) Debelle speaks (Sydney, 9am)
· 17 Mar – RBA board minutes (3 Mar meeting)
· 19 Mar – RBA Bulletin, Q1
· 20 Mar – RBA Governor speaks (Melbourne, 12:20pm)
· 25 Mar – RBA Financial Stability Review