I posted this a little while back, but now is probably an opportune time to repeat it given the comments from RBA Assistant Governor (Economic) Christopher Kent that the RBA has not ruled out FX intervention as an option.
But first, here are Kents comments:
- Initially from his speech: Australia – RBA’s Kent: Reiterates that the AUD is above most estimates of fundamental value
- The intervention comment: Australian dollar – RBA’s Kent: Haven’t ruled out FX intervention
- More on his intervention comment: More detail from his comment transcript
Also, the impact of Kent’s comment today:
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OK, now on with … How to time a currency intervention – inside information direct from a central bank:
From ANZ comes an interesting item titled: What the RBA can learn from the RBNZ.
It is very interesting, but what perhaps makes it more useful for a wider FX trader audience is its reference the triggers for a central bank intervention.
- The RBNZ specifies the ‘opportune-ness’ of intervention as one of the ‘traffic lights’ it considers when intervening. The more ‘opportune’ the moment, the more likely intervention will be effective.
Read about what made RBNZ intervention opportune at the article … such information could come in handy in future.
Also, from Westpac: A primer on the RBNZ’s FX intervention policy
In brief:
- The exchange rate must be at an exceptionally high or low point in the cycle;
- The level must be unjustified based on a range of economic fundamentals;
- Intervention must be consistent with the Policy Targets Agreement (PTA);
- and Market conditions must be opportune, so that intervention has a reasonable chance of success.
There is also a fuller, detailed article here: The Reserve Bank’s new foreign exchange intervention policy
