HSBC's chief economist, Paul Bloxham, has today canvassed the possibility of fewer rate hikes if the AUD keeps appreciating. Referencing RBA research, Bloxham suggests that every circa 5% TWI increase in the AUD, which is what we have had thus far, takes less "than 0.1pp per annum off GDP growth over the next two years and 0.2pp per annum off the CPI over three years." The impact on CPI is nontrivial. So here's hoping for a longer and stronger run on the AUD. Interestingly, the "Blocko", as he has quickly become known in financial markets, also offers another insightful observation on the RBA's exchange rate activities:
"Unlike many other countries, in our view the RBA is highly unlikely to intervene with intent to stem the appreciation or target an exchange rate level. And while the RBA does trade in Aussie dollars, it is typically to smooth out rowdy trading days and manage reserves."
