MNI POLICY: AUD Weakened On Cut, QE Expectations: RBA Debelle

The 5% depreciation in the value of the Australian dollar in the two months since mid-September was due to expectations of easier monetary policy in November, according to Reserve Bank of Australia Deputy Governor Guy Debelle.

In a speech Tuesday to economists, Debelle said market expectations of a November rate cut and the introduction of quantitative easing had resulted in a decline in yields "at the front end of the curve" since September.

In early November, the RBA cut official rates to a new record low of 0.10% and announced an AUD100-billion QE program to purchase government bonds.

Debelle said the period leading up to the announcement also saw longer-term yields decline more than shorter-term yields. The spread between Australian government bonds and those of other advanced economies narrowed.

"This provides some evidence that the quantity of bond purchases has an influence above and beyond the price, particularly in terms of net demand, that is, how much the central bank buys relative to issuance," Debelle said.

The Australian dollar fell from around 73 US cents in early September to 70 US cents, although it has since regained strength against a weaker US dollar.

"It is reasonable to attribute the bulk of this depreciation to the growing expectation of the package announced in November," Debelle said.