Australia – Westpac: “Reserve Bank’s Jawboning Unlikely to be successful without a Policy Change”

A research note from Westpac chief economist Bill Evans. In brief:

• RBA’s jawboning to push the AUD down is unlikely to be successful without a monetary policy change
• But there is very little chance of such a shift
• Q2 inflation is unlikely to be low enough to accommodate more easing

Evans :

• “The Bank’s experience with ‘talking down’ the AUD points to the need to combine policy with strong language. Next week’s inflation print is unlikely to accommodate that easing bias”
• “Further attempts by the governor to talk down the AUD without backing it up with policy are likely to prove as unsuccessful as we have seen in the recent past”
• “Notwithstanding this rather bleak assessment of the success of “jawboning” policy we do expect the AUD to lose some momentum through 2014 (USD 0.90 “target” for year’s end) in lagged response to the sharp falls in commodity prices in the first half of 2014; some lift in volatility which will discourage carry trades; and around a 5% lift in the USD Index.”