RBA minutes: Don't fight AUD strength
The latest RBA minutes show that the central bank may need to accept that the AUD is set to get stronger. The latest minutes show that the RBA expects to have to give 'very significant' monetary support for sometime. The RBA have also revealed why they extended their bond purchase program. They said that if the central bank had allowed QE to end in April the AUD would have risen.
Well, the AUD has risen anyway. There is a long line of central banks who have had to accept that it is very hard to fight market forces. The SNB and the RBNZ in recent history have realised that currency 'wars' can only be fought for so long. In the end it is probably better not to even attempt them. Think of the 1.2000 EURCHF peg and how that impacted the world, for instance. The PBOC wisely stepped aside from any rumoured battle last year. It reminds me of the Clash song. I fought the law...and the law won ;-)
The RBA has a balancing act to perform. The RBA can't afford to get ahead of other central banks as it will send the AUD rocketing higher. That will then damage both its export and its jobs market. So, expect it to keep on with the mantra that no interest rates hike until 2024 and they will want to toe the global party line of 'no tapering!'. The RBA will keep trying to stay behind the major central banks as a smaller player on the field.
You can read the full minutes here.
You can read the RBA's decision summary here.
Meanwhile, this means that the reflation narrative of buying the AUDJPY dip remains the base case.