- Currency weakened as much as 0.6% before reversing declines
- Nation’s bond yields drop to record lows after RBA decision
The Australian dollar rose, reversing declines, after the central bank met expectations by reducing interest rates to a record and analysts said that just brings policy makers closer to the end of their easing cycle.
The Aussie, which fell as much as 0.6 percent after the Reserve Bank lowered its benchmark rate by a quarter percentage point to 1.5 percent, erased losses to gain as much as 0.2 percent. Traders cited a lack of further evidence of easing in the statement for the currency’s recovery. Twenty of 25 economists surveyed by Bloomberg had predicted Tuesday’s rate cut.
“We see the Australian dollar as well supported on dips, with iron ore prices strong, global risk sentiment improving post Brexit, demand for yield around the world solid and the U.S. dollar trading within recent ranges,” Westpac Banking Corp.’s global head of foreign exchange and commodity strategy Robert Rennie and head of fixed-income research Damien McColough wrote in a research note.
The Aussie strengthened 0.1 percent to 75.45 U.S. cents as of 7:49 a.m. in London, extending its advance this year to 3.6 percent.
The central bank cut its benchmark as it moves to counter disinflation and support a labor market hampered by high levels of part-time work and underemployment. Core inflation and wage growth are both at record lows and the Aussie had rebounded about 10 percent from its mid-January trough.
The RBA may take a pause to assess the impact of Tuesday’s rate cut though there is still a chance of another reduction, Westpac said. Swaps traders see an even chance of further easing in November, according to data compiled by Bloomberg.
The RBA’s move sent Australia’s 10-year bond yields to a record-low 1.81 percent, while the three-year yield dropped to an unprecedented 1.36 percent.
There was “no explicit evidence in the statement of further downgrading of its forecasts,” said Ray Attrill co-head of foreign-exchange strategy at National Australia Bank Ltd. in Sydney. Losses in the currency were limited as the market had largely priced in a rate cut, he said.