The Australian dollar remains under pressure as markets look to the Reserve Bank of Australia (RBA) rate decision next week.
“If the RBA wants to provide some non-housing biased stimulus for the Australian economy, it has the perfect opportunity in the week ahead to knock the Australian dollar lower,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
He added, “With the Australian dollar already falling under its own weight, the RBA could facilitate that process a little further by signalling in the governor’s statement that the door to more interest rate cuts is slightly more ajar than the market realises.”
“It’s a neat trick we had a window into just last night,” McKenna said.
From his perspective, McKenna said the markets already we know the RBA has concerns about the labour market and underemployment, low inflation, and moderate growth.
It is also a common thinking that the RBA is unlikely to cut if its policy action simply leads to further goosing of the housing market.
And we know from governor Lowe’s last appearance before parliament in February that he doesn’t see any point lowering rates if it just leads to more housing demand.
According to McKenna, “if the RBA were to follow the more dovish path and signal lower rates were a real possibility, Governor Lowe and his board, can provide an economic stimulus for the Australian economy and put some much wanted upward pressure on inflation by driving the Aussie dollar down toward, and perhaps through, 70 cents.”
It’s one of the reasons why the RBA governor continues to say in his monthly statement after the board meeting “The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment”.
McKenna added, “My bet would be the RBA would like the Australian dollar lower to provide additional stimulus both now and in what could be an uncomfortable 2018 as the housing construction boom starts to unwind.”
At the moment, the Aussie dollar is under a little pressure and has a downward bias.
“Next week, the RBA could give it the nudge that drives this move back to the December/January lows below 72 cents,”
“Will they do it? I guess that depends on whether they think such a signal itself might get borrowers and buyers back into the housing market,” McKenna said.
He added that while there is a real chance that Australia is unlikely to face any real economic challenges in 2017 in 2018, the economy could hit a flat spot.
“And that’s when an Aussie dollar depreciation now might help,” McKenna said.
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