The Aussie dollar dropped almost a cent in value overnight, as comments made yesterday by Reserve Bank head Glenn Stevens permeated through the market.

The A$ this morning was trading at US94.84c, down 0,84c on yesterday, and its lowest level in a fortnight, having climbed into the US97s a week ago.

Speaking at an investment conference yesterday, Governor Stevens indicated a clear sense of frustration at the recent performance of the A$. 

Noting that some of Australia’s trade-exposed sectors had been squeezed by the recent high exchange rate, he said the A$ “was not supported by Australia’s high relative levels of costs and productivity, even though it’s been supported of late by some understandable reasons such as the absence of Fed tapering for now.”

Both the RBA and analysts expect that Australia’s terms of trade will fall, suggesting that the Australian dollar will be materially lower than it is today.

Mr Stevens also made reference to the spill-over effects from a weak US$ and the expectation that Fed tapering will come, which should also start to lessen some of the uncomfortable spill-over effects, with a return to more normal conditions for Australia.

Speaking on other topical domestic issues yesterday, Mr Stevens referred to the recent rise in business sentiment, and an earlier rise in consumer sentiment, but suggested that the jury was still out on whether this would translated into higher spending and activity.

On business investment he said that “information suggests that broader investment intentions in the business community remain subdued. It may be a while yet before we can expect to see conclusive evidence of a change here.”

National Australia Bank analyst David de Garis said what was expected to be an uneventful day in nfinancila circles yesterday was ‘spiced-up’ by Governor Stevens’  efforts to ‘jawbone’ the currency lower.

“He said that the current level of the A$ was not supported by Australia’s relative level of costs and productivity, and it had underscored a loss in international competitiveness,” Mr de Garis said.

“The stubbornly high $A has clearly become more of a concern for the RBA, with Mr Stevens saying yesterday that with an expected decline in the terms of trade should see the A$ materially lower in time. The A$ market sensed the change in atmospherics from the RBA, the AUD/USD dropped from around US95.7c by over a quarter of cent, falling further during the Asia session to the lower US95s.

“The resilience of the US$ has seen the A$/US$ fall further to below US95c overnight, though on the crosses rates it’s been steadier after yesterday’s post-Stevens pullback," Mr de Garis said.

"The RBA would be pleased with the limited success they’ve had for now in pushing the A$ lower, though the extent of that drift might well be tested in the next 24 hours if the Fed statement reflects a more cautious outlook for the economy and any sense that tapering might be delayed until later into 2014 – beyond the still-to-come further budget and debt ceiling debates in Washington. It’ll be an interesting test for the US$,” he said.