Yet another attempt yesterday from the Reserve Bank Governor, Glenn Stevens to talk the dollar lower, and the market reaction was the same – down it went, for a while, but not by much.
And no doubt, as happened after the first attempt a week ago, the dollar will rise after a day or so.
It’s a predictable reaction to another set of pointed remarks about the dollar being too strong from Mr Stevens.
Governor Stevens said in his post RBA board meeting statement yesterday that the dollar remained “uncomfortably high.”
"The Australian dollar, while below its level earlier in the year, is still uncomfortably high. A lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy," Mr Stevens said.
Last week he pointed out “It seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today."
And in the post-October board meeting statement, he said a lower currency “would assist in rebalancing growth in the economy.”
The market ignored those comments as well and after the bank left the cash rate unchanged at 2.50%, yesterday, traders will soon realise the next move in the dollar is very likely to be up, not down. And that will support the value of the currency.
But that probably won’t come for a year, unless the property rebound starts overheating, especially in Sydney.
Rates on hold as RBA tries to talk the currency lower, again
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But we may get a better idea of the RBA’s thinking when the 4th Statement of Monetary Policy is released on Friday by the Reserve Bank.
It will contain the new forecasts for GDP and inflation for the rest of 2013 and through to the end of 2014.
But the market took on board Mr Stevens’ latest comments and down went the dollar to well under the 95.10 US cent level it was trading at around midday, before the his statement at 2.30 pm.
It ended trading in Australia around 94.76, and then resumed rising in offshore trading. It was just under 95 US cents in trading this morning
The sharemarket, which had started strongly, ended with something of a rush as solid gains spread across the board.
The ASX200 index rose 41.5 points, or 0.8%, to end at 5432.0, while the All Ords also added 41.5 points, or 0.8% as well, to close at 5425.7.
That stood out given the rest of Asia was mixed, European markets fell and Wall Street was sedate.
The AMP’s chief economist, Dr Shane Oliver said yesterday that "The clear message is that they (The RBA) are a bit nervous about the strong Australian dollar. They’ve been trying to talk it down but what’s been missing is a clear easing statement in the statement itself. We usually have to wait for the minutes before the easing bias comes out." That will be on November 19.
"They’re trying to step up the pace of jawboning but by the same token, they don’t want to have to cut interest rates again so it’s a fine line between a booming housing sector and getting the rest of the economy stronger. And to do the latter, you need to get the Aussie down," Dr Oliver told CNBC.
Perhaps the most interesting part of Mr Stevens’ comments was his view on the health of the economy.
It’s still sluggish, but the bank can see some positives coming through from the impact of all those rate cuts.
“The easing in monetary policy that has already occurred since late 2011 has supported interest-sensitive spending and asset values," he said.
“The full effects of these decisions are still coming through, and will be for a while yet. The pace of borrowing has remained relatively subdued overall to date, though recently there have been signs of increased demand for finance by households.”
“The economy has been growing a bit below trend over the past year and the unemployment rate has edged higher. This is likely to persist in the near term, as the economy adjusts to lower levels of mining investment.
“Further ahead, private demand outside the mining sector is expected to increase at a faster pace, though considerable uncertainty surrounds this outlook," he said.
And tomorrow we get an update on the health of the jobs market with the October employment and unemployment report. Later this morning we get September’s trade data.
