RBA Rhetoric Pressures Aussie Dollar to New Lows

On Wednesday, the Australian Dollar traded at its lowest levels against the US Dollar since September 4 after five consecutive days of losses. The sell-off in the Australian Dollar comes in the wake of rising speculation over central bank intervention to weaken the Australian currency.

Throughout the year the RBA has been vocal about their concern over the economic consequences of the strong Australian dollar. In the RBA statement of November 5, Governor Stevens described the currency as “uncomfortably high.”

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RBA Lowe Comments

In a speech delivered in Sydney on Tuesday, RBA Deputy Governor Philip Lowe raised the issue of intervention that was also addressed last week by Governor Glenn Stevens.

Deputy Governor Lowe said, "In the past we have been prepared to intervene in the currency market when it was clear the currency market was misaligned or not working well."

Lowe added, "The threshold for intervention is very high, and it is not something that we would rule in or out."

Governor Stevens Comments

The Australian Dollar sold off shaply last week after Governor Glenn Stevens, speaking to the Australian Business Economists annual dinner in Sydney on Thursday, said he was "open minded" on intervening to weaken the Australian dollar.

"Our position has long been, and remains that foreign exchange intervention can, judiciously used in the right circumstances, be effective and useful."

IMF Comments

The recent sell-off began last Wednesday after comments from the IMF added pressure to the Australian currency. In a preliminary statement the IMF recommended accommodative monetary policy, stating "With growth currently on the soft side, the real exchange rate still overvalued and weighing on the non-mining sector, and inflation within the target range, monetary policy should remain accommodative."

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On Thursday of last week IMF deputy managing director Min Zhu added "The Australian dollar is overvalued by around 10 per cent from a medium-term point of view."

AUD/USD Daily Chart

Looking at the AUD/USD Daily Chart we can see that a bearish reversal Head and Shoulders pattern formed and that price has fallen below the neckline at 0.9280. However, the momentum indicator RSI is showing a reading of 28, indicating potentially oversold conditions.