We’ve already been through it. Ever since 2011 the RBA has tried to drop the Australian dollar with rate cuts, or has not lifted rates owing to the fear of a rising Australian dollar. This is what triggered the entrance of APRA into macroprudential policy in 2015. Since then a gulf of diffused responsibility has opened up between the two entities, which nobody talks about in Dumbstralia.
But it will be a problem again soon, now we are into new Federal Reserve easing cycle. If the trade war persists, as seems likely, then that easing cycle will continue in fits and starts, and it is quite foreseeable that sometime in 2020, just as the RBA hits rock bottom on the cash rate at 50bps, the Fed will keep cutting and return to QE, putting enormous upwards pressure on the AUD despite a still weak Aussie economy.
Having been through this very scenario several times since 2011, are the RBA and APRA prepared? Are they working more hand in glove to ensure that they have the tools to keep the currency down while preventing further misallocation of credit into household mortgages?
