Robert Rennie, Research Analyst at Westpac, explains that there was yet another shift in the RBA’s commentary about the A$ in today’s statement.
Key Quotes
“For 25 consecutive meetings between April 2016 and June 2018 the RBA used the words “an appreciating exchange rate could [or would] be expected to result in a slower pick-up in economic activity and inflation than currently forecast”.”
“That guidance was dropped at the July meeting when the RBA merely noted that the “The Australian dollar remains within the range that it has been in over the past two years on a trade-weighted basis”.”
“Guidance shifted further today, with the RBA confirming that the A$ “has depreciated against the US dollar along with most other currencies.” Not surprisingly, the A$ has popped slightly higher post the meeting, rising from circa US$0.7190 to circa 0.7220.”
“This shift in guidance is pretty consistent with our own views here. Given the continued decline in yield differentials, slightly elevated measures of risk aversion but resilient Australian commodity export prices, our measures of fair value have remained fairly stable and centred around 0.75 over recent months.”
“The lower end of the fair value band has tended to remain fairly stable around 0.72, meaning the A$ been hitting levels we consider cheap to our fair value methodology. The A$ should thus continue to find support on dips below 0.72 for the moment. Westpac maintains a forecast of 0.70 by mid next year.”
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