Australian dollar plumbs new depths as market reacts to RBA governor’s jokes

The Australian dollar hit its lowest point in 34 months against the greenback overnight, falling to US90.37 cents before rising slightly to US91 cents this morning.

This beat Tuesday’s low of US90.92 cents, which followed the RBA’s decision to leave interest rates on hold for another month.

Recent falls in the dollar have been blamed on comments by American Federal Reserve chair Ben Bernanke, or on bad economic news out of China.

However, yesterday’s fall has been attributed to a comment made by RBA governor Glenn Stevens to an Economic Society of Australia gathering in Brisbane.

“Yesterday the board, at its monthly meeting, left the cash rate unchanged,” Stevens said. “As you may know, the Reserve Bank board in fact held its meeting here in Brisbane yesterday, at which we deliberated for a very long time, and then elected to sit with the cash rate unchanged.”

Stevens’ comment that the board “deliberated for a long time” has been read to mean the board considered lowering the rate in a bid to boost the economy, which would have lowered returns for international investors and suggested the RBA remained concerned about weakening demand in Australia.

Stan Shamu, a market strategist at foreign exchange trader IG Markets, says the comments add to a range of factors primed to lower the currency.

“We’re in a downward-cycle as far as interest rates go. There’s been a pullback in economic growth. And now we’ve got Glen Stevens talking down the Australian dollar in an attempt to ease pressure on exchange-rate dependent sectors.

“Couple that with what’s happening in America and China, and both sides of the equation are now working against the Australian dollar.”

Several commentators have read Stevens’ comments as a passing joke, but Shamu disagrees. He says Steven’s comments are a deliberate attempt to talk down the dollar.

“I think it was signalling. Steven’s isn’t a man who gives much away. I think he was making some pretty stern comments. And an RBA keen on keeping the currency low is going to discourage people from buying the currency.”

“He even said he expects unemployment to rise. If it rises, then on all metrics, Australia would be showing economic weakness. “

RBA’s deputy governor Phil Lowe is set to give a speech on financial regulation later today. It’ll be worth keeping an eye on any passing comments he makes.

Most analysts and currency experts are now expecting the Australian dollar to sit in the US85 cent range by the end of the year.