With AUD touching 0.95 and diverging from fundamentals, some investors have started to worry about verbal intervention by the RBA, especially since it strengthened its comments on the currency at recent policy meetings.
In this regard, Nomura thinks that while verbal interventions are possible, the AUD would need to appreciate even more for the RBA to further talk down the currency, based on previous experience.
As such Nomura believes that the currency would need to break 0.97 for that to happen. Moreover, with the economy in a better shape than last autumn and Australia holding the Presidency of the G20, Nomura thinks the threshold for verbal interventions could be higher.
“We do not believe that the RBA is ready to start meaningfully talking down the currency at this point. However, further appreciation of the currency, to about 0.97, would likely lead to the RBA making stronger comments about AUD misalignment with commodity prices,” Nomura clarifies.
“However, like last year, we doubt such a strategy would be particularly effective. The experience from last autumn suggests that AUD depreciated because of external factors (worries regarding Chinese growth and higher US yields), not because of the RBA’s comments. AUD is mainly appreciating for external reasons, as foreign investors are searching for higher yields,” Nomura argues.
“We believe that AUD is likely to be well supported in the short-term and could continue to appreciate. However, as growth in the US pick up steam and Fed start to talk about rate hike, we are likely to see higher US Treasury yields which should deflate AUD,” Nomura projects.