22 Nov 2013
Flash: RBA’s Stevens flashed the intervention card - RBS
FXstreet.com (Barcelona) - RBA Governor Glenn Stevens gave a speech titled "The Australian Dollar: Thirty Years of Floating" yesterday, fueling further selling panic on the AUD, with Greg Gibbs, FX Strategist at RBS, noting "intervention is credible."
Key Quotes
Stevens said while it has not yet used “large scale intervention” in the current episode of a strong AUD (over recent years), “that doesn't mean we will always eschew intervention. In fact we remain open-minded on the issue. Our position has long been, and remains, that foreign exchange intervention can, judiciously used in the right circumstances, be effective and useful. It can't make up for weaknesses in other policy areas and to be effective it has to reinforce fundamentals, not work against them. Subject to those conditions, it remains part of the toolkit.”
"Stevens probably feels intervention now, more than in recent past years, might be more effective because the AUD is above what he thinks is justified by its terms of trade, terms of trade are more likely to fall, and the resources investment boom is past its peak. In other words intervention is credible."
"It is doubtful the RBA would use intervention now with the AUD down already significantly from its recent high in October above .975. But it is this recent rebound in the AUD from its lows below .90 in Q3 that appears to have emboldened Stevens to begin his recent more aggressive jawboning of the AUD. The prospect of the RBA using this tool if the AUD were to rebound again is a significant factor that will embolden a market that is already predisposed to sell the AUD."
Key Quotes
Stevens said while it has not yet used “large scale intervention” in the current episode of a strong AUD (over recent years), “that doesn't mean we will always eschew intervention. In fact we remain open-minded on the issue. Our position has long been, and remains, that foreign exchange intervention can, judiciously used in the right circumstances, be effective and useful. It can't make up for weaknesses in other policy areas and to be effective it has to reinforce fundamentals, not work against them. Subject to those conditions, it remains part of the toolkit.”
"Stevens probably feels intervention now, more than in recent past years, might be more effective because the AUD is above what he thinks is justified by its terms of trade, terms of trade are more likely to fall, and the resources investment boom is past its peak. In other words intervention is credible."
"It is doubtful the RBA would use intervention now with the AUD down already significantly from its recent high in October above .975. But it is this recent rebound in the AUD from its lows below .90 in Q3 that appears to have emboldened Stevens to begin his recent more aggressive jawboning of the AUD. The prospect of the RBA using this tool if the AUD were to rebound again is a significant factor that will embolden a market that is already predisposed to sell the AUD."