Our Chief Business Correspondent, Ian Verrender has penned this great analysis on what’s going on with the Australian dollar.

The Aussie dollar has bounced a little this morning as forex traders weighed up the impact of global interest rate moves.

RBA governor Michele Bullock yesterday made clear that domestic interest rates are likely to stay “higher for longer” just as pressure begins to mount on Jerome Powell and his compadres at the Federal Reserve to outline a plan to cut.

Both Canada and the European Central Bank already have begun loosening the monetary policy screws as inflation continues to cool.

According to Citi analysts, that’s likely to provide ongoing support for the Australian dollar.

“Our Australia Economics Team expects the RBA to leave its policy rate unchanged until February next year, and the narrowing of the monetary policy gap to the US, etc, is expected to marginally favour the AUD,” the bank told clients this morning.

The local dollar has risen to US66.66c and Citi reckons the currency should sit around US67c for the next few months.

That’s heartening news for the RBA.

A strengthening currency alleviates inflationary pressure as it makes imports cheaper so the quicker America cuts, the more it will aid the RBA’s quest to dampen inflationary pressures here.

Until a few years ago, Australian interest rates were almost always higher than in the US primarily because we invested more than we saved and we needed to import global capital

In the aftermath of the resources boom, however, when our trade balance shifted to consistent surpluses instead of a seemingly endless run on deficits, that Aussie interest premium evaporated.

At 4.35 per cent, we’re now well below the US at 5.25 per cent and even Canada and Europe which now are sitting at 4.75 and 4.5 per cent respectively.