The RBA dumps manufacturers

Flint-heartedness seems to be catching. Not only has the government sent a clear message to manufacturers that there’ll be no more taxpayer bailouts, the Reserve Bank has now changed its mind about a currency bailout.

When the dollar was US91 cents last year, governor Glenn Stevens said it should be 85 cents, having spent a couple of months saying it was “uncomfortably high”. It was assumed the RBA was much happier about an exchange rate-led recovery than more rate cuts because it didn’t risk creating a housing pop. Manufacturers were grateful but added: “No, no. Make it US80 cents please, not 85”.

Thanks in part to the RBA’s jawboning, but mainly because of the US Fed taper pushing the US dollar higher, the Aussie got to a low of 87.1 on January 30.

And that, it seems, was close enough. Yesterday Stevens abandoned the effort to get the dollar down and removed the RBA’s easing bias, whereupon the dollar promptly rose to 88.9. This morning it’s around 89.5 and, if equity markets continue to recover from Monday’s panic, it will soon be back at 91.

Will the governor get the jawbone out again and once again talk about it being uncomfortable? Unlikely. The problem is the December CPI at 0.8 per cent and annual inflation at 2.64 per cent. The fact that it was mainly health and education prices doesn’t matter. At the first sign of a blip in inflation, Australia’s central bank has gone AWOL from the currency war and left the nation’s exporters to their fate.

It was not couched in the terms used in the government’s decision on SPC Ardmona, but the effect is the same. Manufacturers can no longer look to Glenn Stevens or Tony Abbott for help, and must now email their supplications to Janet Yellen at the US Fed, requesting, if you please, more taper. A rate hike in the US fairly soon would be nice too.

But with the shockingly weak December payrolls report in the US, followed yesterday by an equally shocking January ISM, they’ll get folded arms in Washington too. It’s now the US dollar that’s tapering, along with equities (rather more dramatically) and there’ll be no rate hike in the US in 2014, as well as no rate cut in Australia.

It will be the Year of the Duck in central bank land (immobility on the surface, tense activity beneath), and markets are apparently demanding 200,000 new jobs a month in the US before they believe the global economy is, in fact, recovering.

This Friday’s US payrolls report will be critical. Australian manufacturers (and investors) will be hoping December’s 74,000 new jobs was an aberration and January is back to 200,000 plus. If so, happy days. If not, CEOs really will have to start attacking costs, because neither the governor nor the government are going to help in 2014.