Aussie Dollar Slides as Stevens Says RBA Open to Further Easing

Updated on

Australia’s dollar declined against most of its major counterparts after central bank Governor Glenn Stevens said policy makers retain the option to cut record-low interest rates.

The currency remained weaker versus the greenback after Stevens reiterated his preference for the Australian dollar to depreciate further. The Reserve Bank of Australia refrained from spelling out whether further rate cuts would be needed when it kept its benchmark at 2 percent last week.

Stevens “has reaffirmed he is open to more policy easing,” said Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc in Singapore. “The tone is dovish.”

The Aussie was little changed at 76.91 U.S. cents as of 3:17 p.m. in Sydney, after sliding as much as 0.7 percent to 76.36. It lost 0.2 percent Tuesday.

The currency jumped 2.2 percent on June 2 and moved away from the 75-cent level Stevens favors to keep the economy competitive after the RBA gave no guidance on whether it would keep cutting rates at the end of its policy meeting. The central bank had lowered the benchmark twice this year.

Stevens said Wednesday policy makers “remain open to the possibility of further policy easing” to support the economy.

“It probably reads as maybe more of an explicit easing bias than what the underlying tone of the RBA statement is,” said Jonathan Cavenagh, a foreign-exchange strategist at Westpac Banking Corp. in Singapore. “But I don’t think this speech is dovish enough to drive us below the 76 cent level.”

Competitive Environment

Stevens noted Wednesday that a further decline in the Aussie is complicated by the competitive environment for currency depreciation worldwide. He acknowledged that the impact of looser monetary policy in Australia was becoming more marginal and said infrastructure spending has a role to play in boosting confidence and growth.

“Governor Stevens continues to reiterate that there are limits to what monetary policy can achieve, but as we suspected, he opened the possibility of further easing in an attempt to jawbone the Aussie lower,” said Prashant Newnaha, a rates strategist at TD Securities Inc. in Singapore.

Against its New Zealand counterpart, the Aussie slid as much as 0.7 percent to NZ$1.0712, the weakest since June 2, before trading 0.2 percent lower at N$1.0762.

The kiwi erased an earlier loss against the greenback before the Reserve Bank of New Zealand’s monetary policy decision Thursday. It gained 0.2 percent to 71.47 U.S. cents after earlier falling as much as 0.4 percent.

Six of 16 economists in a Bloomberg survey predict the RBNZ will lower the official cash rate by a quarter point to 3.25 percent Thursday.

“The RBA governor has upped the rhetoric on potential easing,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia in Sydney. “His speech will keep the Aussie heavy, particularly with the heightened risks that the RBNZ eases tomorrow.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE