Robert Rennie, Research Analyst at Westpac, notes that since the November meeting last year, the RBA has maintained steady language on the currency noting that “on a trade-weighted basis, the Australian dollar remains within the range that it has been in over the past two years” but that “an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”.
Key Quotes
“We did see something of a departure last month when the RBA noted that “the Australian dollar has depreciated a little recently”. However, given the recent bounce, there were no great surprises that this reference was removed, leaving the ‘guidance’ consistent with the November to April period.”
“This suggests the RBA is happy with current levels for the A$, likely being close to ‘fair value’.”
“This is consistent with our own modelling which suggest between 0.74 and 0.77, the A$ is within the upper half of the fair value range. The combination of strong Q1 Australian growth and strong commodity prices (e.g. thermal coal at 6 year highs) should continue to support the A$ closer to the upper end of that range in the near term.”
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