Sigh, I did warn the RBA to hit the currency again. Instead, the ECB did, from the WSJ:
The European Central Bank could adopt negative interest rates or purchase assets from banks if needed to lift inflation closer to its target, a top ECB official said, rebutting concerns that the central bank is running out of tools or is unwilling to use them.
“If our mandate is at risk we are going to take all the measures that we think we should take to fulfill that mandate. That’s a very clear signal,” ECB executive board member Peter Praet said in an interview Tuesday with The Wall Street Journal. Annual inflation in the euro zone slowed to 0.7% in October, far below the central bank’s target of just below 2% over the medium term.
He didn’t rule out what some analysts see as the strongest, and most controversial, option: purchases of assets from banks to reduce borrowing costs in the private sector. “The balance-sheet capacity of the central bank can also be used,” said Mr. Praet, whose views carry added weight as he also heads the ECB’s powerful economics division. “This includes outright purchases that any central bank can do.”
The ECB could do more if necessary, Mr. Praet said. “On standard measures, interest rates, we still have room and that would also include the deposit facility,” he said. The central bank’s deposit rate has been set at zero for several months. Making it negative would effectively levy a fee on commercial banks that park funds at the ECB.
The ECB purchased safe bank bonds and government bonds at the height of the global financial crisis and the euro debt crisis, but in small amounts compared with other major central banks.
…The ECB’s charter forbids it from financing governments.
…The ECB must respect its legal constraints, Mr. Praet said, however its rules “do not exclude that you intervene in the markets outright.”
And this morning Janet Yellen fired back:
The dollar dropped in late trading on Wednesday after Federal Reserve Vice Chair Janet Yellen said the U.S. economy was performing “far short” of potential, suggesting the central bank is in no rush to withdraw its stimulus.
“I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy…Inflation has been running below the Federal Reserve’s goal of 2 per cent and is expected to continue to do so for some time.”
And the result? Up and then away for AUD:
As DFM used to say, always respect trend lines until they break. Currency still looks vulnerable to me.
