Finance Finance News Jaw boning is back – RBA governor talks down the Aussie

Jaw boning is back – RBA governor talks down the Aussie

Australian dollar fall
It didn't take much for the Reserve Bank Governor to cheapen the Australian dollar. Photo: Getty
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Well that worked well. The Reserve Bank governor only had to admit the possibility of maybe cutting interest rates to achieve the key benefit of cutting rates – a cheaper Australian dollar.

The perceived shift in possible RBA policy was enough to knock the Aussie down 1.8 per cent to 71 US cents.

With the money market now pricing in an Australian interest rate cut this year, just when the US Federal Reserve is putting its tightening on hold, pressure is likely to remain on our dollar to go lower.

And that is exactly what the RBA wants. The headlines might say “worst day for the Aussie in a year”, but our economic guardians would see it as the best day.

With little enthusiasm for borrowing at present and a tendency for households in uncertain times to pay down debt rather than spend a rate cut, the currency impact is about the best that can be immediately hoped for from softer monetary policy.

A weaker currency is annoying for those travelling overseas, but good for the economy by making our exports more attractive, giving us more bang in Australian dollars for what we sell.

Achieving a lower dollar without actually moving interest rates is a neat central bank trick commonly known as jaw boning.

There remains plenty of uncertainty about what our economy will do next, so jaw boning the Aussie while leaving the cash rate steady was a very nice night’s work by Governor Philip Lowe.

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