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AUD: prizes for jawboning? - Rabobank

FXStreet (Guatemala) - Jane Foley, Senior Currency Strategist at Rabobank, noted the strength of the AUD and the RBA’s recent jawboning.

Key Quotes:

“Lowe last night referred to the level of the AUD exchange rate as being “unusually high”".

"He dismissed concerns about the high level of wages in Australia as really being a function of AUD strength by remarking that “the overall level of wages in Australia are, to some extent, really concerns about the exchange rate, with the high exchange rate leading to high wages expressed in foreign currency terms””.

“Bearing in mind that the RBA’s Kent in the middle of the month remarked that the RBA hadn’t ruled out FX intervention, the RBA appear to be stepping up the pace of verbal intervention, and it is not difficult to understand why”.

“According to the OECD’s measurement of purchasing power parity, the AUD is overvalued against most other developed world currencies (the CHF being the clear exception)”.

“In recent years, China has moved ahead to become Australia’s largest trading partner, but Japan remains in second place”.

“Since the middle of October the AUD/JPY exchange rate has pushed up by almost 9%. This has helped push Australia’s effective exchange rate higher – a move which is unlikely to have been welcomed by neither Australian exporters nor the RBA”.

“In normal circumstances a central bank may consider cutting interest rates to lend its economy support and undercut the outlook for its currency.

“Faced with pressure to curtail mounting levels of household debt, the RBA does not currently appear to be in a position to cut interest rates”.

“Like many other central banks faced with little room for manoeuvre on interest rate policy, it seems the value of the currency has become an increasingly important variable in determining monetary conditions.

“For the RBA, it is not the only central banks actively seeking or appearing to be seeking a softer exchange rate. The SNB, BoJ, ECB and RBNZ are all clear players in the same game”.

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