RBA suggests aussie exchange rate has room to fall further

AUD/USD steadied just above six-year lows on Tuesday, as the Reserve Bank of Australia reiterated in its policy meeting minutes today its desire for a lower currency and that the recent fall in AUD had not gone far enough.

The RBA, which kept the cash rate steady at 2.0 percent at its July 7 policy review, said leaving interest rates at a record low this month was appropriate and said that a lower currency was needed to help achieve balanced growth.

“In light of current and prospective economic circumstances and financial conditions, the Board judged that leaving the cash rate unchanged was appropriate,” the RBA said.

“Information to be received over the period ahead on economic and financial conditions would continue to inform the Board’s assessment of the outlook and hence whether the current stance of policy remained appropriate to foster sustainable growth and inflation consistent with the target.”

The central bank said key forces shaping the economy haven’t changed with record low interest rates and booming resource exports helping to offset falling mining investment and still subdued spending elsewhere.

On the exchange rate, the RBA said while the currency has fallen to six-year lows against the U.S. dollar, its decline has been more modest versus a basket of currencies.

“Members noted that the exchange rate had thus far offered less assistance than would normally be expected in achieving balanced growth in the economy and that further depreciation seemed both likely and necessary.”
Board members reflected that the recent easing in monetary conditions in China would provide additional support to the property market and growth more broadly.

“Recent efforts by central bank government authorities to increase infrastructure investment further and reform local government financing arrangements were also expected to support investment.”

They noted that volatility in Chinese equity markets and potential spillovers from developments in Greece would require close monitoring. Conditions in both have subsequently improved since the July 7 meeting.

The RBA next meets on August 4.

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