A jawboning by Stevens knocks dollar
The currency continued its slide last week, closing at US91.83¢ compared with its October high of US97.08¢.
The fall made the dollar the second-biggest loser, after the yen, against its US counterpart this month. The currency had been gaining after sinking to a year's low of just under US90¢ in late August.
Strategists said while the Reserve Bank's jawboning was not the only factor contributing to the dollar's selloff, it played an important role in its decline. "Linking to the outlook for mining investment has been important," said RBS senior currency strategist Greg Gibbs.
"Over the last month, the significant change that occurred is that Stevens started talking of the need for a lower currency to help the economy adjust, and also at the same time said that [the RBA's] outlook for resources investment had also been downgraded."
Mr Stevens' commentary on the dollar ratcheted up a notch on October 29 when he told a Citi investment conference that "at some point in the future the Australian dollar will be materially lower than it is today".
He stepped up his rhetoric further this month, saying the currency was "uncomfortably high".
Mr Gibbs said Mr Stevens and other RBA officials would not oversell their message. "I don't think there'll be a desire for them to overtalk it. But you've got to keep the impression out there that that's your desire and intervention is certainly a card up the sleeve."
Frequently Asked Questions about this Article…
Jawboning refers to the practice where central banks use verbal communication to influence the currency markets. In this case, the Reserve Bank of Australia (RBA) has been using jawboning to talk down the Australian dollar.
The Reserve Bank of Australia has been actively using jawboning to influence the Australian dollar's value. Governor Glenn Stevens has flagged possible intervention in the foreign exchange markets and emphasized the need for a lower currency to help the economy adjust.
The Reserve Bank of Australia believes a lower Australian dollar would help the economy adjust, particularly in light of a downgraded outlook for resources investment. A lower currency can make exports more competitive and support economic growth.
The jawboning efforts by the Reserve Bank of Australia contributed to the Australian dollar's decline. The currency slid to US91.83¢, making it the second-biggest loser against the US dollar after the yen.
Glenn Stevens stated at a Citi investment conference that at some point in the future, the Australian dollar will be materially lower than it is today. This statement is part of the RBA's jawboning strategy to influence the currency's value.
The market reacted to the Reserve Bank of Australia's jawboning by selling off the Australian dollar, contributing to its decline against the US dollar. The currency's value dropped from its October high of US97.08¢ to US91.83¢.
The outlook for mining investment played a significant role in the Australian dollar's decline. The Reserve Bank of Australia's downgraded outlook for resources investment was linked to the need for a lower currency, influencing the market's perception and contributing to the dollar's selloff.
Yes, intervention in the foreign exchange markets is a possibility for the Reserve Bank of Australia. Governor Glenn Stevens has indicated that intervention is a card up the sleeve, although the RBA officials are cautious not to oversell their message.
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