Dollar Climbs to Decade High as Aussie Weakens Before RBA Result

The dollar marched on to fresh decade highs as U.S. data reinforced speculation interest rates will rise, heightening the divergence with countries including Australia.

The Aussie remained weaker against most of its major peers before a Reserve Bank meeting ends on Tuesday at which economists predict policy makers will cut borrowing costs. The currency pared losses following better-than-expected reports on Australia’s building approvals and current account deficit.

“The figures were good and on the basis of that, you’d expect the Aussie to appreciate a little bit,” said Derek Mumford, director at Rochford Capital, a currency risk-management company in Sydney. “But the market is selling into any rally and is very much positioning itself for an RBA cut.”

Australia’s dollar fetched 77.63 U.S. cents at 11:11 a.m. in Tokyo, from 77.66 cents in New York. The currency fell as much as 0.2 percent earlier.

The RBA cut borrowing costs by a quarter-percentage point on Feb. 3 to a new low of 2.25 percent. There’s about a 65 percent chance the RBA will reduce rates on Tuesday, up from 35 percent odds the day after last month’s decision, according to swaps prices compiled by Bloomberg.

“The probability is heightening that the RBA will lower interest rates by 25 basis points today,” said Takeru Kurokawa, an analyst in Tokyo at Ueda Harlow Ltd., which provides margin-trading services, wrote in a note to clients. “The market will likely react by selling the Aussie if the RBA cuts.”

Dollar Strength

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, advanced 0.4 percent to 1,176.47 on Monday, the highest close in data going back to 2004. The gauge was at 1,175.50 on Tuesday.

The greenback rose above 120 yen for the first time in over two weeks and gained against the euro on Monday after a measure of consumer purchases increased in January, suggesting that falling gasoline prices boosted the biggest part of the U.S. economy.

U.S. consumer purchases adjusted for inflation rose 0.3 percent, following a 0.1 percent drop the prior month, a Commerce Department report showed Monday.

The Markit Economics final index of U.S. manufacturing climbed to a four-month high of 55.1 in February from 53.9 a month earlier, the London-based group said Monday.

Federal Reserve Chair Janet Yellen said last week the timing of any increase in borrowing costs will depend on economic data. The central bank has said it can be “patient” on raising rates.

“There’s definitely going to be a lot more focus on the data going forward,” said Sireen Harajli, a strategist at Mizuho Bank Ltd. in New York. “Markets will try to look at the details and try to figure out what the Fed may or may not do as a result of the data.”

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