From the Madometer at Dad’s Army:
The Australian dollar hasn’t done a great deal since the Reserve Bank of Australia’s February rate cut. In fact it has pushed a little higher, hitting a peak of just over US80c. Not that this is unusual mind you, it’s the same sort of price action we saw in the early phases of the RBA’s easing cycle back in 2011 and 2012. Unusual or not though, the price action does send an important signal: that the RBA’s already loose grip on the currency might be weakening further.
Consider the backdrop: Questions are surely being raised within the walls of Martin Place about the overall policy strategy. Especially — and assuming alleged media leaks are correct — if the RBA is set to follow up a rate cut with further downgrades to growth and inflation forecasts. If that’s all true, then there really is nothing more to say. The inescapable conclusion must be that monetary policy doesn’t work. It’s that simple.
Super logic. Rate cuts haven’t worked so there’ll be no more rate cuts. No mention of why the rate cuts haven’t worked or what would have happened if there hadn’t been any.
Rate cuts have lowered the dollar – that’s why it’s at 78 cents and not $1.10 – and like it or not boosted growth in the short term. The problem is the structural headwinds are so gigantic that they’re overwhelming policy.
Very obviously, the result will be more cuts.
