Australian dollar sucked down as RBA pulls the plug

See the latest Australian dollar analysis here:

Australian dollar ugly in the Euro mirror

Risk is on but not for the Australian dollar which is retesting the lows again:

There is only one reason for this today. The excellent work of the uber-dovish RBA, via RBC:

RBA Governor Lowe spoke overnight, erring towards more rather than less (confirmation of a rolling 3y YCCtarget, further emphasis on the degree of slack in the economy, structural headwinds to wages).Our rates team notes that the lack of further detail on the composition of QE2 suggests that the current split between ACGB and semi buying is likely to remain unchanged at 80/20. On TFF, given ample (cheap) deposits and modest use of the TFF, this maybe one measure that is pared back. Finally the Governor has laid the groundwork for macro pru to be redeployed.

Capt’ Lowe explicitly declared no TFF pullback. As well, with macroprudential policy now the front line response to any house price boom, there is NO prospect of any tightening in the cash rate. Citi rounds us off:

RBA Governor Lowe spoke earlier in the Asia session following the RBA meeting yesterday, which saw the central bank leave the base rate and 3yr bond yield target at 0.10%, as broadly expected. There was a dovish point though, with the bank announcing earlier than anticipated that it would purchase an additional AUD100bn of bonds issued by the government and states and territories when the current purchase program is completed in mid-April.

Today, while AUD trades marginally higher vs the USD at 0.7615 as a function of benign risk sentiment currently, it is facing pressure vsNZD, not only on the above, but also as the market reprices expectations around Antipodean central banks. Comments from Lowethatthat interest rates won’t rise until 2024, “if not later” as well as references to the need to avoid “unwelcome upward pressure on the exchange rate” are likely weighing via the crosses

Australia has gone to ZIRP and is going to stay there for the currency.

I still expect one more round of AUD upside as the global economy surges out lockdowns but that will be it as China slows and iron ore comes back to earth.

Don’t fight the RBA!

David Llewellyn-Smith

Comments

  1. pfh007.comMEMBER

    So many LOLs

    The RBA does not care two hoots about the AUD and never has. Perhaps Holden will release a new
    Lowe riding coupe ?

    The RBA cares about economy activity and that means one thing to the pointy heads in Martin Place. Stimulating the demand for debt peddler product lines.

    The AUD is a by product of that objective and is not a driver of it.

    Macroprudential has ZERO to do with managing the AUD. It struggles to exist at the best of times anyway.

    Surely by now this is obvious.

    • AUD is down purely and simply because iron ore demand has collapsed, down 10% each week since january 15th as detailed frequently as the scrap metal ban ended and the increase in demand was PURELY based on the $1 Trillion infrastructure stimulus from Beijing – the steel demand, hence ore demand is brought foreward in preparation – that has now finished, ore crashes, aud crashes house price crashes.

      MB insists the only real demand for ore in China is apartments because thats all China has – the entire ponzi theory repeated ad nauseum here daily and the basis for the entire China crash theory which to hold water MUST exclude all China modernisation, productivity in infrastructure etc.

      Its so bizarre.

      • pfh007.comMEMBER

        Yep – agree.

        Need only look at a chart to see that the AUD has been tracking the commodity boom and not the interest rate pea shooter operated by the RBA.

        Whatever marginal effect RBA interest rate policy may have on the AUD the RBA has only a passing interest.

        On the other hand, if China were to turn off the imports from Australia and we found ourselves back deep in CAD land, then the AUD will weaken and the RBA might find that their capacity to run ZIRP and NIRP limited by a plummeting AUD.

    • Reducing the currency reduces economic activity contrary to fairy tales of the inverse. Taxes reduce economic activity. Low interest rates do not promote economic activity, If the pension funds, savers, and self funding retirees had interest money coming in as in the past the economy would benefit. We really are stuffed.

    • Deep inside of a parallel universe
      It’s getting harder and harder
      To tell what came first

      Under water where thoughts can breathe Easily
      Far away you were made in a sea
      Just like me

  2. “Australia has gone to ZIRP and is going to stay there for the currency”

    Bwahahaha. Sure, nothing to do with the aim of asset inflation. Move along, nothing to see.

    Apologies DLS, but you seem to be the only with some magical faith in RBA and its intentions.

    I simply don’t get it.

  3. Never been impressed with more recent RBA management of rates or currency. My background is in both on a wholesale basis as trader and broker. RBA generally reactive – as for the currency – if you want it lower then don’t just play with rates but get into the FX bid and sell a few billion. As for very low rates for the long haul – seems pretty stupid and I wouldn’t be surprised if they did a U turn much sooner.

    • Higher rates would be the equivalent of sh$tting in the pool mid-pool party….and who really wants to do that.

  4. “Only one reason for this today” – because we can’t acknowledge the truth about iron ore and the trade war.

    Seriously WTF ?

    It is following ore demand in an EXACT correlation – how can anyone take this seriously ? Truly crazy stuff.