Australian dollar lifts after Reserve Bank comments

The Aussie dollar rallied sharply today after the RBA left rates unchanged and stepped back from further currency jawboning.

The Australian dollar rallied sharply today after the Reserve Bank left interest rates unchanged after a policy meeting and stepped back from further jawboning to push the currency lower.

The Australian dollar was trading at US73.75c at 4:45pm, up from US72.97c late yesterday.

The RBA has warned repeatedly in recent month that further falls by the Australian dollar were both “likely and necessary”.

But that message changed today to a more benign comment around the adjustment of the Australian dollar to falling commodity prices.

“The Australian dollar is adjusting to the significant declines in key commodity prices,” RBA Governor Glenn Stevens said in a statement.

The comment immediately sparked a rally in the currency.

Sean Callow, a currency strategist at Westpac, said the RBA had toned down its concern over a high Australian dollar, which has lately been weaker, recently hitting six-year lows against the US currency.

Still, some RBA watchers said the currency reaction was overdone.

“It is highly unlikely that the board of Australia’s central bank now suddenly feels that the Australian dollar is right where it should be or that it is at some fair value,” ANZ said in a research note.

It was more likely that the RBA believes that it was going to fall from here without their encouragement, ANZ said.

“This suggests that they are reasonably confident that the Fed will raise rates in the next few months,” ANZ said.