[LFX]

The RBA has reiterated that the rise in AUD would constrain output and dampen inflationary pressure. The continued rise in AUD may well slow the pace of RBA tightening going forward, which was the case in 2004. After two 25bps rate hikes in late 2003, the RBA was on hold throughout 2004, noting that “The more general forces that have influenced the (AUD) over the past year… have been the relative strength of the Australian economy, the associated yield differential in favour of AUD assets, and the continued improvement in Australia’s terms of trade... the appreciation has continued to an extent that has in recent months brought the
exchange rate noticeably above its long-run average..(and) is reducing the stimulus to the Australian economy.