What had looked like persistent strength for the Aussie dollar today, even after drab inflation data, now appears to be melting away after a speech from the Reserve Bank of Australia’s governor suggested the central bank would take no cues from its counterparts’ recent tightening.
The Australian dollar was off as much as 0.7 per cent against its US counterpart as trading got underway in Europe on Wednesday at $0.7878.
The intraday nadir came after RBA governor Philip Lowe downplayed the importance of other central banks’ moves to tighten in recent months, suggesting the RBA will chart its own course (emphasis added):
Elsewhere in the world, some central banks are now starting to increase interest rates and others are considering when to withdraw some of the monetary stimulus that has been put in place. This has no automatic implications for monetary policy in Australia. These central banks lowered their interest rates to zero and also expanded their balance sheets greatly. We did not go down this route. Just as we did not move in lockstep with other central banks when the monetary stimulus was being delivered, we don’t need to move in lockstep as some of this stimulus is removed.
The currency had appeared to weather without too much trouble unexpectedly low Q2 consumer prices index readings earlier in the Asian trading day. But the comments from Lowe proved enough to turn sentiment sour, with Commerzbank analysts noting that “Australian central bankers are far from certain as to whether there will be a reversal in monetary policy in the foreseeable future.”
“It would seem that the market euphoria that started after the Bank of Canada’s rate hike and also supported the Australian dollar was not justified,” they added.
HSBC said the currency is looking too strong as well:
Cautious comments from RBA Governor Lowe support our view that the Australian dollar may be overbought. Absent of a dovish surprise from the [Fed] later today, it should move lower, potentially testing key support levels around $0.7750.