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It's a big week for the RBA

The RBA’s Glenn Stevens fronts a House of Reps economics committee that now includes one Clive Palmer. Michael Pascoe comments.

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The big event or non-event of the week is supposed to be what the US Federal Reserve decides on Wednesday night:  to taper, or not to taper, that is the question. But what if the foreign exchange market no longer really cares?

For all the anticipation and speculation and especially after the market wobbles when the Fed first mentioned the possibility, there's a strong chance it doesn't matter as so much because it's now taken for granted that it will happen at some stage, probably sooner than later, and it's already priced in.

Oh, there will no doubt be a flurry on any announcement or non-announcement, but a few months one way or the other should be immaterial, particularly when the US central bank has been successfully pushing the line that tapering is not tightening, that official rates will stay low for a long time anyway. And that has serious implications for the Australian dollar.

Waiting on the Fed: Chairman Ben Bernanke.

To taper or not to taper: US Fed chairman Ben Bernanke. Photo: Reuters

What also has been taken pretty much for granted is that the start of tapering should help weaken the Aussie. It sounds reasonable – stop debasing the greenback, it should rise with the corollary of the Aussie falling.  That certainly is the great Reserve Bank hope.

But what if the forex market has already priced tapering into our dollar trading around the 90 US cent level?

There was a curious feature in Friday's Financial Review, one of those regular quizzing of five alleged top foreign exchange strategists from NAB, Westpac, State Street, Bank of America Merrill Lynch and JP Morgan. I'm highly sceptical of such articles as no-one is actually much good at forecasting the Aussie and most such forecasts are just a small extrapolation of whatever the current trend might be, but I was interested in the response to the question: what will the Aussie average over 2014.

One strategist avoided giving a number, one gave a range of 90 to 93 US cents, one said 90, one said 89 and the last 88 with the qualification of it going down to 80 in 2015. Anyway, average the four guesses of the average for 2014 and you get 89.6 US cents, which is five-hundredths of a cent from where it finished in New York on Saturday morning.

The observation to be made isn't whether the guesses were right or not, but that it appears a significant part of the market doesn't think tapering will matter much after all. And we do know forecasting is a mugs' game.

To taper, or not to taper: that is the question:

Whether 'tis nobler in the policy to suffer

The slings and arrows of outrageous printing,

Or to take arms against a sea of greenbacks,

And by tapering reduce them?

Michael Pascoe is a BusinessDay contributing editor. @michaelpascoe01