More dovish comments from the Reserve Bank of Australia (RBA) on Tuesday led to another big slide in the Australian dollar, which fell to its lowest level in more than two weeks.
RBA Governor Glenn Stevens said he would not be surprised if the currency, which is down almost 13 percent against the U.S. dollar this year, fell further.
The Aussie dollar fell as low as $0.9050 and remained 1.5 percent lower in late Asia trade. It is one of the worst performing major currencies this year.
Stevens' comments, which reiterate remarks made earlier this month, now have market watchers wondering just how low the Aussie dollar needs to go before the RBA eases up on talking the currency down.
"If the Australian dollar hits the mid-$0.80s in the next couple of months the RBA will ease off," Katrina Ell, associate economist at Moody's Analytics, said. "The lower exchange rate will push inflation higher, so the RBA won't have the room to cut rates anymore."
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Consumer price data last week showed that underlying inflation was around 2.4 percent in the second quarter, well within the RBA's long-term target of 2 to 3 percent. Financial markets price in a more than 85 percent chance of an interest rate cut next week when the RBA meets, according to Reuters.
Lower for now
Greg Gibbs, senior FX strategist at RBS, said the RBA would be looking for the Aussie to fall in line with a decline in Australia's terms of trade, which measures the value of exports relative to that of imports.
That means the appropriate level for the Aussie may depend on what happens to commodity prices, he said.
"Where commodity prices are currently, a move in the Australian dollar to around $0.85 might be about right. The RBA would be hoping that this would be sufficient to reignite business confidence," Gibbs said.
