Citi: G10 week ahead: Will the RBA engage in verbal intervention?

From the FXWW Chatroom: The coming week brings the next RBA policy meeting. While no change in rates is anticipated, strengthening in AUD has likely fed some expectation for push back from the RBA with more dovish language. We continue to believe that such expectations are premature. Disappointment with relative hawkishness could provide a short-term boost for AUD, while the bigger picture remains that domestic developments and a relatively high yield make the currency an attractive target for USD sellers. We believe risks favor a move to 0.80 in the weeks ahead. The issue is that recent appreciation looks to at least partly be underscored by underlying improvement with moderately firm data flow and stable inflation expectations and commodity prices continue to trade higher than their levels from earlier this year. Combined with the emerging currency détente among global policymakers and this argues against immediate action from the RBA to try to stem a rally. Indeed, Governor Stevens last week clearly passed on the opportunity to take a stand against the currency. Given the experience in NZ, where the currency is somewhat stronger following recent RBNZ resistance it is not clear that verbal intervention would have even passing impact. Next week also brings retail sales, building approval and trade data, while there are few events of note in NZ.

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