- Reserve Bank says economy's `spare capacity' to continue
- Australia's key rate kept at 2%, as forecast by economists
The Australian dollar strengthened for a fifth day versus its U.S. peer as traders pared bets that interest rates would be lowered this year by the central bank after it kept them unchanged at a record low of 2 percent on Tuesday.
The Aussie rose against all except three of its 16 major counterparts, reaching a two-week high versus the U.S. currency, after the Reserve Bank of Australia said in a statement that available information “suggests that moderate expansion in the economy continues” and “has been accompanied with somewhat stronger growth of employment.”
“While there was chatter over the previous weeks and days that the bank was considering doing more, there doesn’t seem to be any rush to do so,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “We’re looking for Aussie to continue squeezing higher. Selling into Aussie rallies probably still makes sense on the policy-divergence standpoint versus the U.S.”
Australia’s dollar climbed 0.4 percent to 71.08 U.S. cents as of 7:36 a.m. New York time, after touching 71.34, the strongest since Sept. 22. It gained 0.5 percent to NZ$1.0964.
The RBA in its statement also said “the economy is likely to be operating with a degree of spare capacity for some time yet, with domestic inflationary pressures contained.” The Aussie is “adjusting to the significant declines in key commodity prices,” the central bank said.
“The statement on the inflation outlook and the Aussie suggest the bank is not intending to do anything,” said Yuji Saito, executive director of foreign exchange at Credit Agricole SA in Tokyo. “It implies things are going the way it expected so the bank doesn’t have any bias but to maintain the current easing stance.”
Interest-rate swaps data compiled by Bloomberg show traders see a 40 percent chance the RBA will lower its benchmark by December, down from 49 percent odds on Oct. 2.
That compares with the Federal Reserve, where wagers on a rate increase have been pared back amid concern the slowdown in China’s economy will weigh on growth around the globe. Traders are pricing in a 36 percent probability that the Fed will raise its target rate by December, down from a 58 percent likelihood seen a month ago, according to futures data compiled by Bloomberg. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff.
The dollar depreciated 0.3 percent to $1.1217 per euro Tuesday after slipping 0.3 percent against the common currency last quarter as expectations of a Fed rates liftoff waned.
The greenback climbed against all but three of 16 major peers in the three months through Sept. 30, rising most versus the currencies of commodity-producing nations such as Brazil’s real and South Africa’s rand as well as Australia’s dollar.
The Aussie “could continue to perform in the very near-term,” foreign-exchange strategists at BNP Paribas SA including Michael Sneyd said in an e-mailed note. “However, we would caution that the global headwinds which are now restraining Fed action also imply a challenging environment lies ahead for the commodity currencies.”