Aussie Slumps To Multi-day Lows Against Yen And NZ Dollar
The Australian dollar lost ground in early Asian trading on Tuesday following the release of the minutes of the Reserve Bank of Australia’s November 3 meeting, which revealed that the central bank is hinting strongly at more interest rate increases, but is giving no hint as to the timing of them. The aussie tumbled to a 13-day low against NZ dollar and a 4-day low against the yen.
The minutes showed the Monetary Policy Committee felt “conditions in the global and Australian economies were significantly better than expected earlier in the year,” with the board concluding that “it remained prudent, over time, gradually to reduce the degree of monetary accommodation.”
At the November 3rd meeting, the board raised the cash rate by 0.25 percent to 3.50 percent.
The minutes showed the RBA was concerned about the delicate balance between an accommodative monetary policy and the negative effects of higher rates, specifically the expected rise in value of the Australian dollar.
“The rise in the exchange rate would constrain output and dampen inflationary pressure,” the minutes said. The minutes warned, however, that “a lengthy period with interest rates at a very low level carried its own risks, particularly once the threat of serious economic weakness had passed.”
On the equity front, the Australian stock market pared most of its early morning gains with a section of investors choosing to go in for some profit taking.
The benchmark S&P/ASX 200 index, which rallied to 4,799 in early trades, has dropped down sharply from that level and is currently trading at 4,762, up 6.8 points or 0.2% over its previous close. The broader All Ordinaries index has drifted down to 4,784 from a high of 4,817.2 and is up just 10.2 points or 0.2% over Monday’s close.
Among other markets in the Asia-Pacific region, Japan and South Korea are trading modestly higher, while New Zealand and Singapore are exhibiting weakness.
The Australian dollar fell to a 4-day low of 83.19 against the Japanese yen around 9:20 pm ET, compared to Monday’s New York session closing value of 83.47. The aussie-yen pair is presently worth 83.3 with 83.0 seen as the next downside target level.
An index measuring tertiary industry activity in Japan was down 0.5 percent in September, the Ministry of Economy, Trade and Industry said today, posting a score of 96.4.That was below analyst expectations that had called for a 0.2 percent monthly increase after the 0.3 percent gain in August. For the third quarter of 2009, the tertiary industry activity index was up 0.5 percent on quarter with a score of 96.6.
The Australian dollar drifted lower to 0.9342 against the greenback by 9:20 pm ET, down by more than 0.7 percent from yesterday’s fresh 15-month high of 0.9408. In near-term, the aussie-buck pair is likely to test support around the 0.933 level. The pair that closed Monday’s North American trading at 0.9372 is presently worth 0.9348.
The dollar declined yesterday as continued indications of low interest rates from Federal Reserve Chairman Ben Bernanke and better-than-expected news from the retail sector generated considerable buying interest of riskier assets.
Fed chief Ben Bernanke reassured the markets that a number of accommodative policies, including near-zero interest rates, would remain in effect for an extended period. He also noted that the Fed is attentive to the declining U.S. dollar, but will continue to focus on its objective of maximum employment and price stability.
The Australian dollar slumped to a 13-day low of 1.2489 against the New Zealand dollar by 8:25 pm ET and the pair moved sideways thereafter. The next downside target for the aussie-kiwi pair is seen around the 1.244 level. The pair was worth 1.2529 at Monday’s North American close.
The aussie that closed Monday’s New York deals at 1.5983 against the European currency edged slightly lower to 1.6022 around 9:50 pm ET. The euro-aussie pair is currently quoted at 1.6018.
From the euro-area, the seasonally adjusted euro-zone trade balance report for September is slated for release at 5:00 am ET Tuesday.
In the New York session, the reports on producer price index, industrial production and housing market conditions are likely to be in focus, along with comments on the economic outlook from Richmond Federal Reserve President Jeffrey Lacker.
