Australia’s dollar fell against all of its major peers, erasing earlier gains, after the central bank signaled it’s prepared to cut interest rates to a record- low this year after holding them unchanged today.
The inflation outlook “would afford scope to ease policy further, should that be necessary to support demand,” the Reserve Bank of Australia said in a statement today after today’s policy decision. Australia’s bonds rallied and New Zealand’s dollar fell as declines in global stocks demand boosted demand for haven assets.
“Aussie selling pressure stems from the comments that the RBA made that inflation outlook gives scope for further easing,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “The market has taken that to mean the RBA is sitting ready to ease.”
RBC expects the next interest rate cut to come in the second quarter, according to Trinh.
The Aussie fell 0.3 percent to $1.0404 at 4:50 p.m. in Sydney from yesterday, after earlier climbing as much as 0.2 percent. It declined 0.3 percent to 96.12 yen, after touching 97.08 in New York, the highest since August 2008. New Zealand’s kiwi dollar slid 0.1 percent to 84.20 U.S. cents from yesterday. It was down 0.1 percent at 77.80 yen.
The yield on Australia’s 10-year bonds fell 10 basis points, or 0.10 percentage point, to 3.49 percent from yesterday, when it touched 3.61 percent, the highest level since May 2.
The MSCI Asia Pacific Index of stocks lost 0.9 percent, following a 1.2 percent decline in the Standard & Poor’s 500 Index (SPX) yesterday. The Stoxx Europe 600 Index (SXXP) dropped 1.5 percent yesterday.
RBA Governor Glenn Stevens and his board kept the overnight cash rate target at 3 percent, in line with forecasts by 24 of the 28 economists in a Bloomberg News survey.
“The Board’s view is that with inflation likely to be consistent with the target, and with growth likely to be a little below trend over the coming year, an accommodative stance of monetary policy is appropriate,” the RBA said.
Interest-rate swaps data compiled by Bloomberg show traders see a 50 percent chance the RBA will lower its benchmark rate at its next meeting on March 5.
Losses in the so-called Aussie were limited after reports showed the country’s trade deficit narrowed and house prices grew more than economists estimated.
Australia’s imports outpaced exports by A$427 million ($444 million) in December, compared with a revised A$2.79 billion shortfall in November, the Bureau of Statistics said in Sydney today. The median estimate of economists in a Bloomberg News survey was for an A$800 million deficit.
Government data also showed an index measuring the weighted average of house prices in eight major cities advanced 1.6 percent in the fourth quarter from the previous three-month period, when it fell a revised 0.1 percent. That compared with a 0.3 percent rise estimated by economists.
Commonwealth Bank of Australia (CBA) and the Australian Industry Group said today the performance of services index rose to 45.3 in January compared with 43.2 in December. The 50 level divides an expansion and contraction.
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