Forex Flash: AUD: What does passive intervention mean? - Nomura

FXstreet.com (Barcelona) - Nomura Strategist Geoffrey Kendrick has taken a look at what is actually meant by the phrase "passive intervention" as it has been increasingly mentioned when talking about the RBA in the past few weeks.

Kendrick begins by noting that with today's October RBA FX reserves data is the third data point to indicate that passive intervention may be occurring. However, he remains sceptical for now that the RBA have taken this step and if it has, the potential implications for AUD are significant.

He notes that specifically, if adopted, this policy would allow non-resident reserve managers to keep buying AUD, but RBA action would keep those flows off-market. Thus, his expectation of a negative Q4 basic balance print would be strengthened further. He notes that Passive FX intervention would be significant as the last 'active' intervention to sell AUD by the RBA occurred back in April 1992. Trade wise, he recommends a short AUDNZD spot position as today's bond redemption (with about $6bln owned by non-residents) assisting his view and has seen AUDUSD catch up with S&P futures on the downside.