Back
2 Aug 2013
Flash: From bad to worse for the Australian dollar - UBS
FXstreet.com (Barcelona) - As Gareth Berry, UBS FX Strategists, notes, if it was not enough having been caught in the crossfire of a strong US dollar, sharp decline in portfolio flows into Australia, China slowdown and fears over Australian growth, now inflationary pressures are subsiding too after PPI inflation in Q2 dropped to 1.2% , "reinforcing RBA’s view that plenty scope remains for further policy easing" Berry said.
With another 25 bp cut from the RBA on Tuesday fully priced in, Berry is now watching for three things:
"Policy bias: If the RBA maintains an explicit easing bias in the policy statement, AUDUSD will likely pay the price for that."
"Pass-through to borrowing costs: If the RBA eases, and if the cut is not passed on in full, AUDUSD will likely suffer due to the increased risk of further RBA easing."
"Prospects for rebalancing post mining boom: Can this transition be managed smoothly? RBA rhetoric on that question has gone from sounding optimistic, to merely hopeful lately. Next week the tone could switch again to communicate a degree of concern − unless the currency were to assist this transition by weakening further. Any comments to that effect would likely add to selling pressure on the currency."
With another 25 bp cut from the RBA on Tuesday fully priced in, Berry is now watching for three things:
"Policy bias: If the RBA maintains an explicit easing bias in the policy statement, AUDUSD will likely pay the price for that."
"Pass-through to borrowing costs: If the RBA eases, and if the cut is not passed on in full, AUDUSD will likely suffer due to the increased risk of further RBA easing."
"Prospects for rebalancing post mining boom: Can this transition be managed smoothly? RBA rhetoric on that question has gone from sounding optimistic, to merely hopeful lately. Next week the tone could switch again to communicate a degree of concern − unless the currency were to assist this transition by weakening further. Any comments to that effect would likely add to selling pressure on the currency."