The Reserve Bank of Australia’s strong track record in market intervention suggests the Australian dollar’s upside could be limited, says Chris Turner, head of foreign exchange strategy at ING.
“The minutes of the last RBA meeting revealed the central bank had been strategically selling the Australian dollar in June,” he says. “While strategic intervention – or ‘replenishing FX [foreign exchange] reserves’ – is prevalent in Asia and now in Switzerland, we are interested because of the RBA’s previous success in reining in the currency.”
He says similar action by the RBA in early 2004 put a lid on the Aussie dollar for a couple of years.
So what is driving the RBA’s decision to replenish FX reserves? Mr Turner says that just as in early 2004, the RBA believes the dollar has strengthened a little too fast, too early in the global recovery cycle.
“Perhaps the RBA believes the improving US outlook and expectations for Federal Reserve tightening in 2010 can start to provide some real resistance to further Australian dollar strength against its US counterpart.
That might be an aggressive conclusion, yet the RBA [has] previously timed the market well.”
He says the RBA’s FX activity runs counter to the view it will be the first in the G10 to raise rates as an Asian expansion boosts Australia’s economy. “We would certainly not argue with that view,” he says.
“The minutes of the last RBA meeting revealed the central bank had been strategically selling the Australian dollar in June,” he says. “While strategic intervention – or ‘replenishing FX [foreign exchange] reserves’ – is prevalent in Asia and now in Switzerland, we are interested because of the RBA’s previous success in reining in the currency.”
He says similar action by the RBA in early 2004 put a lid on the Aussie dollar for a couple of years.
So what is driving the RBA’s decision to replenish FX reserves? Mr Turner says that just as in early 2004, the RBA believes the dollar has strengthened a little too fast, too early in the global recovery cycle.
“Perhaps the RBA believes the improving US outlook and expectations for Federal Reserve tightening in 2010 can start to provide some real resistance to further Australian dollar strength against its US counterpart.
That might be an aggressive conclusion, yet the RBA [has] previously timed the market well.”
He says the RBA’s FX activity runs counter to the view it will be the first in the G10 to raise rates as an Asian expansion boosts Australia’s economy. “We would certainly not argue with that view,” he says.
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