Reserve Bank of Australia (RBA) Governor Glenn Stevens claimed on Monday that the Australian dollar exchange rate
is not currently a true reflection of economic conditions in the country.
According to Craig Erlam, Market Analyst at Alpari UK, Stevens went on to suggest that the currency should fall in the future in line with the 'terms of trade'.
"This sounds much more like the kind of comments we were hearing earlier this year from the central bank. Once attempts at talking down the currency failed, a rate cut would then follow soon after," he said.
As the Sydney Morning Herald reported, Stevens played down concerns about a possible bubble in housing prices. Furthermore, he had words of caution for Forex investors, saying the recent rise in the Australian dollar had come from levels that were already "unusually high".
"The foreign exchange
market is perhaps another area in which investors should take care," Stevens said at an investment conference in Sydney. "It seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today."
As Craig Erlam noted, while we have seen some weakening of the Aussie in response to these comments, they haven't necessarily come as too much of a surprise. "Ever since it became clear that the Fed is unlikely to scale back its asset purchases until next year, a number of central banks have adopted a more dovish tone and it was only a matter of time until the RBA joined that list," he said.
Royal Bank of Scotland FX strategist, Greg Gibbs, believes that the RBA much prefers a lower exchange rate to lower interest rates to further stimulate growth if required. "This is pure jaw-boning the AUD will little hint of policy shift to back it up. As such, we should see little lasting impact on the AUD. In fact his relative confidence in the US, European and Chinese outlook and the displeasure for further cutting rates might be regarded as reasons to buy the AUD," he said.
Under a technical analysis perspective, Karen Jones, technical analyst at Commerzbank believes that the AUD/USD has recently charted a key day reversal from the 200 day moving average at .9730 and "is exposed on the downside for losses towards the 38.2% retracement at .9410 and then the 55 day ma at .9320."
Analysts at FX empire believe that the 0.95 level does look rather supportive, and therefore it is very likely that the AUD/USD grinds lower at a slow pace until the US non-farm payroll number comes out and gives the markets a catalyst in order to move one direction or the other. "Truthfully, it's difficult to imagine selling this pair until we break well below the 0.93 handle, something that does not look very likely, at least not anytime soon as there is so much noise between here and there," they concluded.