Six words to trigger slide
With just six words — "deliberated for a very long time" — Reserve Bank governor Glenn Stevens has sent the embattled Australian dollar tumbling.
The currency, which has shed 14 per cent of its value since mid-April, lost half a cent following Mr Stevens' comments on Wednesday about the Reserve Bank's decision on interest rates.
The dollar slipped to a 34-month-low against its US counterpart, falling below US91¢. It was trading at US90.58¢ late on Wednesday.
The plunge showed how sensitive investors were to any remarks about the dollar. It also mirrored the global jitters infecting financial markets over past weeks following comments by another central banker, US Federal Reserve chairman Ben Bernanke, of a possible pull-back of its stimulus program.
"The degree of focus on the exact wording and the tone is reminiscent of the years where Greenspan was 'the oracle' on monetary policy and the markets would hang on every word he said and how he said it," Westpac's senior currency strategist, Sean Callow, said of Mr Stevens' comments, which were understood to have been a quip and not intended to be taken literally. Alan Greenspan was the chairman of the US Federal Reserve from 1987 to 2006.
Expanding on his prepared statement, "yesterday the board, at its monthly meeting, left the cash rate unchanged" to the Economic Society of Australia in Brisbane, Mr Stevens instead said: "As you may know, the Reserve Bank board in fact held its meeting here in Brisbane yesterday, at which we deliberated for a very long time, and then elected to sit with the cash rate unchanged."
Commonwealth Bank chief economist Michael Blythe said while it was not known what the context of the "deliberations" was, "it is reasonable to assume they focused on the need for further interest rate stimulus".
Deutsche Bank currency strategist John Horner said Mr Stevens' remarks suggested the RBA's decision on Tuesday had been a close call and that a cut in August to take the cash rate down to 2.5 per cent was possible.
Late on Wednesday ANZ revised its interest rate forecast to factor in a 25-basis-point cut next month and another cut in November. Financial markets priced in a 59 per cent chance of further easing of monetary policy at the RBA's August meeting.
Currency strategists said the Reserve Bank had been trying to talk the dollar down over the past few years.
While the markets were not listening in the past, they were now, Rochford Capital senior consultant Richard Breen said.