Today’s better than expected employment data has put a rocket under the Australian dollar, which earlier today broke through $US0.94 for the first time in 2014.
According to UBS bond strategist, Matt Johnson, the Aussie dollar is now around 6% overvalued according to the RBA’s own model, and will eventually have to fall. From the Fairfax Markets Blog:
Johnson says the RBA tends to kick up a fuss when it breaks those grey bands so they might resume voicing their displeasure.
That might mean the RBA will restart “jawboning” – and with the balance sheet recapitalised the threat that they might intervene might be a tad more credible.
The most likely consequence of the rising currency is that it will force a revision of the RBA’s growth forecasts.
Still Johnson is of the view that the Australian dollar is headed south as US interest rates normalise.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
