The AFR has a rent-a-quote piece this afternoon from some delicate currency strategists:
RBS currency strategist Greg Gibbs said: “At some point the RBA might think you can over-talk the currency…It was a brave move when they came out and started talking tough on the currency – that was a moment of true policy grit,” Mr Gibbs said. “Whether that was the fact the currency fell is another question,” he added, referring to the supportive combination of traders bringing forward their timing on the Federal Reserve’s reduction in stimulus and signs the Chinese economy is headed for slowdown.
“He hit a bit of a chord with the market,” Mr Gibbs said. “You run the risk of over-talking from here… the consequences are that you have to be prepared to back it up and I think the RBA is prepared to back it up. They would know that talking along these lines does require having something they’re prepared to do and I think that’s intervention above US95¢.”
Macquarie’s Australia economist Brian Redican said that because the RBA used jawboning so sparingly, its effect was more pronounced when the central bank did go ahead with it.
…Deloitte Access Economics director Chris Richardson did not share some experts’ concerns that the RBA could undermine its jawboning strategy by overshooting. “I’m all for a Reserve Bank governor who jawbones loud and long,” he said. “It’s not a bad thing for markets to see the Reserve Bank be effective in jawboning or even just think the Reserve can be effective in jawboning. It’s not something they do a lot.”
Bloody oath, Chris.
Brave? The RBA has been so far behind the curve on the currency for so long they it can only be described as reactionary. Now that they have timidly ventured into a bit of jawboning they should have a long plan to deploy new research on macroprudential tools, printing money for portfolio invetors, speeches and interviews on intervention, as well as seeding debates about Australian economic weakness and Dutch disease into the international media. And they’re going to have to hatch a plan to talk down the lunatics loose in the Sydney property market as well. If you’re going to jawbone, go the whole hog.
And this should go, and on, and on. Right now markets everywhere are in thrall to central banks. Put your boot on their throats. Mincing won’t help.
