2014.03.0708:11:29UTC+00Australian Dollar In Almost Three-Month High

Stepping up verbal intervention may be the Reserve Bank of Australia's only alternative to curb the Aussie as empowering economic data and a neutral policy stance drive the currency toward a three-month high.

The local dollar reached 91.11 U.S. cents, reaching yesterday’s three-month high of 91.13, after Governor Glenn Stevens told lawmakers today jawboning has a limited effect on the currency. He said the exchange rate is high by historical standards, reiterating comments in a March 4 policy statement. The Aussie jumped this week as data showed faster-than-assumed economic development and the largest exchange surplus in 2 1/2 years.

Stevens commented on the currency in every 2013 statement since August, when he and his board made their last trim that push the cash rate to a record-low 2.5 percent. He said the Aussie was “uncomfortably high” in November and December, making it drive its weakest yearly decline in five years.

The currency rallied last month after the RBA indicated a period of stable rates and a move away from efforts to verbally drive the exchange rate down. It has sustained advances this month even after the central bank resumed noting its stability.

“The RBA has boxed itself in now since ramping up verbal intervention after the August cut,” said Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore. “If they don’t talk it down, it will go to the moon.”

The Aussie has skyrocketed 1.9 percent this month after soaring by as much in February, the best performance in five months. Its 14 percent decrease in 2013 was the largest since 2008. The currency was slightly altered at 90.86 U.S. cents as of 12:15 p.m. in Sydney. It briefly dropped after Stevens told lawmakers the currency over 90 U.S. cents was above the RBA’s evaluation.

Most Prudent

The statistics bureau reported a A$1.43 billion ($1.3 billion) trade surplus for January yesterday, surpassing economist projections for A$100 million. Other data this week displayed Australian retail sales increased 1.2 percent in January, the largest advance in 11 months, and fourth-quarter gross domestic product leaped 2.8 percent from a year earlier.

Stevens reiterated this week that steady rates would be “the most prudent course,” after signaling a shift to a neutral policy bias last month.

“The RBA has undercut its efforts at verbal intervention by shifting to a neutral bias on rates,” Todd Elmer, a Singapore-based currency strategist at Citigroup Inc., wrote in an e-mailed note to clients on March 4. “By removing the threat of lower interest rates, there is less reason for investors to take RBA rhetoric on FX seriously, because this is the most powerful tool at policy makers’ disposal for impacting the exchange rate.”

Unexpected Inflation

A report in January showed the consumer price index bolstered 2.7 percent in the fourth quarter from a year earlier, up from 2.2 percent in the previous period and more than the 2.4 percent increase projected by economists. The RBA targets inflation between 2 percent and 3 percent on average.

The currency’s pullback had contributed to an increase in consumer financial values in the final three months of 2013, Stevens said in comments to a parliamentary panel in Sydney today.

With inflation edging greater, it will possibly be hard for the RBA to keep talking the currency lower, according to Mitul Kotecha, the Hong Kong-based global head of foreign exchange at Credit Agricole Corporate & Investment Bank SA, which sees the Aussie soaring to 93 cents by December 31.

“It’s very difficult for the RBA against this backdrop to be too negative on the currency,” Kotecha said. “If it’s a gradual appreciation in the Aussie and the magnitude is as limited as we’re expecting, I don’t see the RBA getting in the way of that to any real degree.”