ANZ navigates Aussie dollar depreciation

The Australian dollar has been one of the few currencies to have followed a clear trend this year, with AUD/USD weakening from 1.05 at the start of the year to a low of 0.88 in early August. ANZ has retained its lead in the currency, even as the currency's resilience in more recent months has proven challenging.

"ANZ's comprehensive regional footprint in Asia has allowed us to have a stronger handle on the global forces that have driven the Australian dollar this year. Through much of the period the Reserve Bank of Australia (RBA) was easing, the Aussie stayed strong. Global forces drove the Australian dollar's eventual recalibration with commodity prices," says Paul Moore, head of FX and commodities for Europe and the US at ANZ in London.

Traders have remained largely cautious on the Aussie dollar's resilience and have found the currency's correlation to other currencies to be unpredictable. One major driver of the currency has been the interest rate decisions made by the RBA, which have at times shocked the market, as in May, when the rate was cut by 25 basis points to 2.75%. More recently, the RBA left interest rates on hold at the historic low of 2.5% on November 5.

The Australian dollar's behaviour this year has been a marked contrast to last year, when it was the recipient of safe-haven flows, strengthening particularly sharply during the middle of the year. Despite the currency's strength, the RBA has so far refrained from intervening, although governor Glenn Stevens last week hinted it could still be an option in the future.

"We remain open-minded on the issue," said Stevens, speaking at the Australian Business Economists' annual dinner on November 21. "Our position has long been, and remains, that foreign exchange intervention can, judiciously used in the right circumstances, be effective and useful. It can't make up for weaknesses in other policy areas and to be effective it has to reinforce fundamentals, not work against them. Subject to those conditions, it remains part of the toolkit."

ANZ's comprehensive regional footprint in Asia has allowed us to have a stronger handle on the global forces that have driven the Australian dollar this year

Looking forward to next year, ANZ remains committed to the Australian dollar but is also planning to continue its expansion across Asia, as well as further developing its electronic trading capabilities. "Good electronic distribution is vital to a modern FX business. We are doing a lot of work in this area, which is vital given our ambitious volume growth targets," says Moore.