The Australian dollar might fall further as export prices eased, the country's central bank said, as it repeated that it had room to cut interest rates again, according to minutes of its June 4 meeting, at which it held the bank rate steady.
"It was possible that the exchange rate would depreciate further over time as the terms of trade declined, which would help to foster a rebalancing of growth in the economy," the Reserve Bank of Australia said in the minutes, released yesterday.
"The board also judged that the inflation outlook as currently assessed might provide some scope for further easing, should that be required to support demand."
Bank governor Glenn Stevens and his board have lowered borrowing costs by 2 percentage points over the past 20 months to 2.75 per cent, joining global counterparts in embracing record low rates to help combat currency strength.
Stevens is aiming to rebalance growth as mining regions in the north and west of the country thrive and manufacturers in the south and east struggle.
Alvin Pontoh, a Singapore-based Asia-Pacific strategist at TD Securities, said: "We are left with no doubt that the RBA remains on an easing bias, but [the] minutes provide no new guidance on whether or not the RBA will pull the trigger.
"There is little here to dissuade us from expecting the RBA to stand pat again next month."
The Australian dollar fell to 94.76 US cents in Sydney from 95.43 US cents before the release of the minutes.
Since the reserve bank cut the cash rate, as it is known in Australia, in May, the Australian dollar has fallen about 7 per cent, helped by speculation on a change in US policy.
"Interest rates had declined further as a result of the board's decision at the May meeting," the reserve bank said, referring to its unexpected decision to cut the cash rate last month.
"The exchange rate had also depreciated noticeably, though it remained at a high level considering the decline in export prices that had taken place."
While the country's terms of trade, a ratio of export prices to import prices, peaked in 2011, Australian industry has been squeezed by a currency that held above US$1 from mid-June last year to May 10, the longest stretch above parity with the US dollar since 1983. However, the RBA said, the Australian dollar had depreciated against most currencies, "reflecting further declines in commodity prices and market concerns about the outlook for China, as well as the reduction in the cash rate."