An article from Terry McCrann in the local Australian press this morning is doing the rounds of rooms this morning.
In a nutshell, McCrann argues 2 points:
1. The RBA expects the Fed to keep cutting $US10 billion at every subsequent meeting this year. And therefore
“In short and critically, the RBA sees the Aussie as “safe” from moving higher. Less obviously, it does not mean that the RBA doesn’t want the Aussie to go lower. .. the RBA clearly believes in broad terms that the continued taper program … will put further downward pressure on the Aussie. This will overpower any upward pressure from the very modest shift in the RBA’s rate rhetoric.
2. There is an expectation within the RBA of of continued, sustained, below trend – but not too far below trend – growth; the challenge of rebalancing into the fall-off (hopefully, not a plunge) in resources construction investment; and crucially, no serious inflation breakout, even with a further fall in the Aussie.
But:
The RBA does not believe in its own omnipotence. It doesn’t claim to know the world will unfold broadly like this; so it remains crucial to follow any changes in RBA thinking as and when, and of course if, circumstances and its expectations change.
and ” that it is now one bad inflation number away from a most troubling policy challenge”
–
Other points he makes:
- There is a G20 meting in Sydney in a couple of weeks. …We can reasonably assume that the RBA’s “jawboning” on the Aussie has been ‘noticed’ by other central banks. We’ve got a lower Aussie. It’s probably politic for the G20 host not to keep ‘jawboning’ when the Fed will do the further work anyway.
- And … “The further message from this is that it does not expect to have to RAISE rates anytime soon, and indeed, not-so-soon; more fundamentally that it does NOT assume that the next rate move will be a hike.”
Like I said, this article is doing the rounds this morning and is taking away some of the impetus for a higher AUD. Having said this, there are plenty of buyers about today (orderboard soon). And sellers too, to be fair – there are not many believers in this AUD rally.
Article is here (not gated)
(and ps. Another article doing the rounds is this one, covered by Adam earlier)
