In today's statement on monetary policy (Nov 5, 2013 in Australia), the Reserve Bank of Australia (RBA) offered up its usual menu of economic observations. As usual, my main interest turned to what the RBA had to say about the Australian dollar (NYSEARCA:FXA). I was looking for some creative twist on jawboning the currency lower. Instead, the RBA provided another passive take on the currency… I daresay it even sounds like they are close to giving up hope that the market will cooperate in helping them drive the currency much lower.
Here is what the RBA said in October about the Australian dollar:
"The Australian dollar rose recently, but is still about 10 per cent below its level in April. A lower level of the currency than seen at present would assist in rebalancing growth in the economy."
Here is what the RBA had to say in today's statement:
"The Australian dollar, while below its level earlier in the year, is still uncomfortably high. A lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy."
In my eyes, the first statement appears hopeful. The RBA points out the positive about the currency's lower level. The second statement is more direct about the RBA's disappointment. Sure the currency is lower, but it is still "uncomfortably high."
Interestingly, however, the RBA introduced a tad bit of uncertainty in what an even lower currency means. In the first statement, the RBA is sure that a lower dollar will generate economic balance. In the second statement, the RBA chose to use the word "likely." I know I may be over-reaching, but this change sure sounds like the RBA is preparing for the possibility that the currency will ultimately not cooperate with the needs for economic rebalancing anytime soon.
Even if I am reading too closely between the lines, it is important to note what the RBA did NOT include: 1) again no mention of the potential for lower rates, and 2) no alternative mechanism for driving the currency lower.
For currency traders, the statement suggests that the Australian dollar is free to float upward as long as chasing higher yields remains "in vogue." Based on this statement, I am staying long the Australian dollar for now (against any and all major currencies depending on the circumstances).
Suddenly, the Australian dollar's W-bottom looks a lot more firm…
Additional disclosure: In forex, I am long the Australian dollar