The Australian dollar got a small boost after Reserve Bank of Australia deputy governor Phillip Lowe said the currency is getting low enough to help support economic growth, giving an indication of the levels the central bank wants the Aussie to trade at.
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Asked for his target for the Australian dollar, Mr Lowe at a conference on Thursday said he suspected the currency – which has slid 16 per cent against the US dollar in the past six months – was still too high but that it was also "much, much closer" to where it needed to be to support growth.
The comment was taken as a softening in the RBA's long-standing verbal campaign for a lower currency and gave the Australian dollar a brief lift to the day's high of US78.41c.
Mr Lowe also said there was scope for the central bank to cut the cash rate further if needed, though he offered no guidance on how likely such an easing would be, nor did he explain why the RBA remained on hold on Tuesday, defying market expectations of a follow-up cut to February's easing.
"Global developments have left us with a higher exchange rate and lower interest rates than would otherwise have been the case," Mr Lowe said. "We may not like this configuration, but developments abroad give us little choice."
The dollar crept higher following the RBA's surprise decision on Tuesday to keep rates on hold at 2.25 per cent, but has traded pretty much flat since then.
Apart from the brief spike after Mr Lowe's comments, the local currency was little moved on Thursday despite the trade deficit widening from $477 million to $980 million, retail sales growing just 0.4 per cent in January and China cutting its growth target to 7 per cent, from 7.5 per cent.
It's not surprising to see the Australian dollar within a tight range, as local developments combined with negative yields in Europe and the European Central Bank set to give more detail on its stimulus program overnight, Westpac chief currency strategist Robert Rennie said.
"You put the lot together and you get a currency that's quite happy to sit in a US77.5¢ to US79¢ range. It's very difficult to envisage a world where the Aussie dollar pushes above 79¢," Mr Rennie said.
Ahead of the ECB announcing more details about its asset purchase program overnight on Thursday, the euro has traded lower against both the Australian dollar and the US dollar. Overnight on Wednesday the euro fell to an 11-year low against the US dollar, $US1.1062.
"We doubt that the details of the program will be shocking and view the decline in the euro as a reflection of the reality that Quantitative Easing is coming," BK Asset Management managing director Kathy Lien said.
"Given the recent improvements in eurozone data and positive comments from the central bank governor, we continue to believe that the currency pair is near a bottom."
The US dollar, which has been surging against most major currencies, including a near 17 per cent run against the Aussie, still has a way to go as the American economy improves, according to Citi strategists.
"From a long-cycle perspective we are still in the infancy of a USD bull run. Typically these last between 6-10 years – if you trace back 1975," Citi's Richard Cochinos wrote.
On a trade-weighted basis, the US dollar has risen close to 13 per cent since the middle of 2014.
The US Federal Reserve is laying the groundwork for policy changes and non-farm payrolls continue to improve.
"The majority is moving ever closer to normalisation. Yellen's testimony in February was a cautious move by the FOMC to prepare the market, without a precommitment to do so," Mr Cochinos said.