Facing challenges in his final term: Reserve Bank Governor Glenn Stevens.

Glenn Stevens: wants the dollar to drop. Photo: Glenn Hunt

The Reserve Bank's jawboning on the need for a weaker exchange rate has sent the Australian dollar falling again, with the currency plunging nearly one US cent overnight to hit a four-month low.

In comments analysts said was the first time the RBA governor Glenn Stevens had explicitly provided a target level for the Australian dollar, Mr Stevens told The Australian Financial Review he wanted the currency closer to 85 US cents.

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The dollar plunged shortly after midnight when the interview was published online, falling from 90.60 US cents to a low of 89.16 US cents this morning. The plunge saw the dollar close in on the year's low of 88.48 US cents in late August.

It was buying US89.23¢ in late trade.

The currency is on track to record its eighth consecutive week of declines, and has shed 1.94 per cent of its value so far this week. The dollar fell 3.7 per cent in November, its biggest monthly fall since June. 


Mr Stevens, who along with other RBA officials has in recent weeks have said a lower dollar is needed to support the economy as it transitions away from mining-led growth, said he would be surprised if the currency did not fall further.

"I thought 85 [US cents] would be closer to the mark than 95 at the time we started to make some comments some months ago," Mr Stevens told The Australian Financial Review.

"I just think that if things over the medium term evolve as we're presently assuming – and I think it's reasonable to make these assumptions – it’s going to be surprising if a nine at the front is the right number."

The central bank's jawboning - a word used to describe the verbal pressure used by someone in an important position - started in late October after the dollar soared to 97 US cents just weeks after falling to the year's low.

Currency strategists said Mr Stevens' comments were a ramping-up of its recent pressure.

"Governor Stevens did provide some actual levels in terms of Aussie-US. Historically, they have been somewhat reluctant to provide guidance to that extent," Commonwealth Bank currency strategist Peter Dragicevich said.

At the same time, data released overnight showed that US retail sales had jumped a larger-than-expected 0.7 per cent, boosting signs the US economy was strengthening and that the Fed was more likely to start winding back its $US85-billion-a-month ($95.1-billion-a-month) bond-buying program sooner rather than later.

"It clearly does suggest that the US economy seems to have weathered the debt ceiling-government shutdown period well," Westpac's chief currency strategist Robert Rennie said.

"We are seeing clearer signs of momentum in retail sales [and] employment coming into the end of the year. What that does do is it certainly raises the tempo surrounding the tapering debate and we get an FOMC as soon as next week, so that certainly is something that has benefited the US dollar and hit the Aussie."

Mr Rennie said recent local news, such as the announcement of Holden's 2017 exit from manufacturing in Australia and equity falls on the back of corporate guidances, also weighed on the dollar.

The downward pressure on the currency is not expected to abate next week, with Treasurer Joe Hockey expected to reveal the troubled state of the federal budget in the Mid-Year Economic and Fiscal Outlook on Tuesday.

On the same day, the Reserve Bank is set to publish its December board meeting minutes, while Mr Stevens will appear before a House of Representatives committee in Canberra on Wednesday.

The much-anticipated statement from the Fed's FOMC meeting will be released early Thursday morning AEST.

A series of factors weighed on the Australian dollar the last time it fell below 90 US cents in August. Financial markets were preparing for a trimming of the Fed's quantitative easing program at its September meeting. The monthly asset purchases have seen "cheap money" boost risk assets around the world, such as the Australian currency, and analysts expect these assets to weaken as the stimulus is withdrawn.

But the Fed did not launch the start of its tapering program at its September meeting as expected, and the Australian dollar bounced up, retracing some of its losses. At the same time, fears of an economic slowdown in China, Australia's largest trading partner, have eased, providing some support for the local currency.

Strategists said the Australian dollar was less likely to experience a similar bounce next week.

"In September, when the Aussie did bounce back quite sharply, I think a majority of the market was prepositioned for the Fed to start tapering, and then there was a surprise reaction. We don't think there's the same level of expectations for the meeting next week," Mr Dragicevich said.

"I think everyone is of the view that the Fed will taper - it's just a matter of the timing. There's a risk they will taper next week, but we are more inclined to think they will taper early next year.

"The tapering is priced in, but it is diluted across when it could happen."

The Australian currency has also struggled against the New Zealand dollar, and was trading at five-year low levels this week. It was buying $NZ1.0858 in late trade.

It could fall even further against the New Zealand dollar next week when the country releases its third-quarter GDP figures, with the new data potentially reinforcing expectations of a near-term hike in interest rates, analysts said.

 

Clique