The Reserve Bank has signalled it is counting on further falls in the high Australian dollar to help rebalance the economy.
In the minutes from its June board meeting, the RBA said recent cuts to the cash rate had helped tame the currency which was stubbornly high above parity until recently.
Noting the impact of the surprise cash rate cut in May to 2.75 per cent, the RBA said, "the exchange rate had also depreciated noticeably, though it remains at a high level considering the decline in export prices" over the past year.
"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 the economy," the minutes concluded.
The decline in the Australian dollar began on budget night last month as the Treasurer began his speech, and it has since fallen by as much as 8 per cent.
This morning, the Australian dollar was trading at 95.26 US cents at 11:38am (AEST), and had eased by around 0.3 of a cent after the release of the RBA's minutes.
While recent cash rate cuts and the outlook for slower economic growth have played a role in the dollar's demise, better fortunes for the US economy and a resurgent greenback has been the principal driver.
The minutes released today provide one of the more extensive snapshots on the RBA's view on the direction of the dollar after 2 percentage points in rate cuts since late 2011.
National Australia Bank currency strategist Ray Attrill expects the dollar's decline to continue.
"It is not going to return to the levels we saw at the beginning of the year and for much of last year, and that inherently makes the Australian dollar a less attractive asset for global investors," he said.
"The risks associated with owning a currency like the Australian dollar, in terms of the risk that you're going to get completely blown out of the water by very short-term movements in the currency, is what I think underlies a lot of the reversal of the Australian dollar's fortunes."
Room to move
The RBA's June board meeting left the cash rate steady at 2.75 per cent, but added that the outlook for steady inflation "might provide some scope for further easing".
But TD Securities Asia-Pacific Strategist Alvin Pintoh believes there is no clear indication the RBA is planning a rate cut in July.
"The global backdrop has changed very little since the June RBA meeting, and the tone of the domestic data have been mixed," he wrote in a note.
"A rate cut can't be ruled out, but there is little here to dissuade us from expecting the RBA to stand pat again next month."
The board also "observed that the effects of low interest rates had been evident in a range of housing market indicators", with building and loan approvals higher.
At the same time, the RBA says labour market conditions remain "somewhat subdued", with monthly employment data continuing to be "volatile".
The minutes released today pre-date official data released after the meeting which showed the Australian economy grew by a slower than expected annualised rate of 2.5 per cent in the March quarter.
The RBA also pointed to uncertainty on global markets because of speculation that the US Federal Reserve was about to taper its quantitative easing program.