Glenn Stevens, the governor of the Reserve Bank of Australia, testified in parliament and had a lot to say. Yet again, he repeated the stance that a material fall in the Australian dollar is underappreciated. What’s more interesting, is that he said that he is puzzled why the USD is not higher given the recent recovery in the US economy.
With these words, Stevens joins his colleague Mario Draghi at the European Central Bank, that explained why EUR/USD should fall. Nevertheless, the situation of the Australian dollar seems better than the euro. That is related to the prospects of more easing in Australia, which remain low.
Stevens also said that he hasn’t considered intervention in currency markets useful so far and that he expects some improvement in employment growth this year. His colleague Lowe said that the monetary policy cannot be an engine of growth, thus hinting of no upcoming rate cuts.
Stevens also made it clearer: in an answer to a question, he said that he hasn’t thought about raising rates any time lately and also rate cuts are not exactly on the agenda: he would consider lower rates if he thought it would be helpful, but they “are not the answer right now“.
All in all, the Australian unemployment rate is at 6.4%, the inflation rate is around 2% and despite some kind of slowdown, especially in mining investment, the Australian economy is doing quite alright.
This explains the relative strength of the Aussie in the wake of a very strong rally of the US dollar, which saw multi-month records against the euro, pound, kiwi and yen.
For more, see the Australian dollar forecast.
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