FXStreet (Delhi) - Charles St-Arnaud, Research Analyst at Nomura, suggests that the main driver of the weaker AUD is the lower terms of trade, not lower rates. Key Quotes “The AUD TWI has depreciated by about 25% since 2013. We decompose the depreciation and found that only between 15% and 20% of the move is owing to the narrower rates differential, while lower commodity prices account for about 75% of the move.” “This means that using monetary policy to stimulate the economy via a weaker currency is very inefficient. Moreover, it also shows that the main way AUD can depreciate is via a further decline in commodity prices, which in turn would be negative for Australia’s terms of trade and the economy.” “The weak CPI report for Q3 has raised expectations that the Reserve Bank of Australia (RBA) will cut rates sooner rather than later. Currently, we continue to believe the RBA’s next move will be a cut in February.” “With the RBA having said many times that a weaker currency will support the transition from a resource-led economy to a non-resource-led one, many investors have now taken this to mean that the RBA wants monetary policy to weaken AUD. However, what impact does the rate cut have on the currency?” For more information, read our latest forex news.