AUD/USD drops 30 pips after RBA’s Debelle lower AUD would benefit economy

• AUD/USD runs into offers as RBA’s Debelle says intervention is a policy option. 
• A weaker AUD would be beneficial for Australia’s economy, Debelle added. 
• Sustained risk aversion in global equities could yield a deeper decline in the AUD.

The offered tone around the Australian dollar strengthened on Tuesday, pushing AUD/USD lower from 0.7235 to 0.7205 after Reserve Bank of Australia’s (RBA) deputy governor Guy Debelle said a weaker Aussie dollar would bode well for the Australia economy. 

“The board is watching developments in the forex markets closely, and while intervention may not be effective as the AUD is broadly aligned with fundamentals, a lower exchange rate would definitely be beneficial for the economy,” Debelle said. 

The policymaker added that intervention is a policy option, and the bank could buy bonds further out along the curve to lower rates at longer maturities. 

Debelle mentioned lower cash rates and negative rates as other options and added that the economy is currently seeing a gradual and uneven recovery. 

The policymaker’s comment on the intervention being an option isn’t surprising, given the AUD/USD pair has rallied by over 1,700 pips over the past six months. However, as noted earlier, the central bank believes the exchange rate is aligned with fundamentals. As such, the bank is unlikely to go beyond occasional jawboning any time soon. 

However, the pair could suffer a deeper drop during the day ahead if the risk aversion worsens. Global equities fell on Monday, pushing the US dollar higher across the board as a resurgence of coronavirus cases across Europe and other parts of the world threatened to derail the nascent economic recovery. 

Technical levels