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Mar 19 - 09:48 PM

AUD/USD - COMMENT-Poor AUD/USD Liquidity Could See The RBA Step In

By John Noonan  —  Mar 19 - 08:15 PM

The RBA doesn't mind the AUD/USD moving lower, as they see a lower exchange rate as useful in absorbing external shocks.
But the Australian central bank will step in if they believe there is an imbalance in the market - leading to trading vacuums and unacceptable volatility.
The RBA hasn't intervened since the 2008 Global Financial Crisis when the AUD/USD fell nearly 40% from 0.9850 to 0.6010 in three months and faced extended periods with no buyers and a wall of sellers.
An Click here written in 2011, but relevant today, noted that RBA intervention has evolved from determining fair value and leaning against the AUD/USD price when they felt it was extremely over- or undervalued, to intervening "in instances of severe market dysfunction". Thursday's price action suggested the AUD/USD spot market was close to such a state - prompting RBA Governor Lowe to say they were ready to act if the markets became one-sided nS9N2B902U.
If the RBA was to intervene, it would not signal that they believe the AUD/USD is undervalued or that they were looking to draw a line in the sand.
If the AUD/USD continues to move lower in an orderly fashion and with reasonable liquidity, the RBA would happily stay on the sidelines.

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Refinitiv IFR Research/Market Commentary


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