Glenn Stevens, the Governor of the RBA, has been talking his currency down for a long time now, suggesting that 75 cents is an appropriate level for the Aussie dollar. In the last few months the currency has lost almost 20% versus the greenback, and tomorrow’s interest rate decision could bring further pressure.
The China economy is contracting, their steel mills are reducing output and the price of iron ore, Australia’s largest export, has halved in the last year. Stevens hopes that a weaker AUD will improve the domestic situation. One thing that he needs to be wary of is the house price bubble that continues to inflate – Sydney property prices are up over 12% in the last year alone.
The major trendline from the lows seen in 2001 and 2008 is around 71 cents. The 61.8% retracement of the big move from 60 cents in 2008 to just above 1.10 in 2011 has been convincingly broken, so an assault on the 70 cent level looks inevitable, even if rates (which have been on hold for almost a year and a half) do stay unchanged tomorrow.