Aussie Advances for Third Day as RBA Seen on Hold Into Next Year

  • Governor Stevens holds cash rate at record-low for sixth month
  • Euro ends three-day gain before speech by ECB President Draghi

Australia’s dollar extended its recent gains after the central bank kept the nation’s benchmark rate at a record low and said prospects for economic improvement had “firmed,” prompting traders to bet policy will remain on hold until 2016.

The Aussie rose for a third day versus the U.S. dollar as a rally in emerging-market stocks encouraged investors to buy other higher-yielding assets. The euro ended a three-day advance before European Central Bank President Mario Draghi speaks in Frankfurt later on Tuesday. In an interview published on the weekend, he cast doubt on the prospect of adding to the monetary stimulus that tends to weaken a currency.

The Reserve Bank of Australia surprised some who were anticipating a reduction in the 2 percent main rate, said Petr Krpata, a London-based foreign-exchange strategist at ING Groep NV.

“It was a close call and they didn’t cut, so we saw the Aussie rally against the dollar,” Krpata said. “Going forward, the market prices in around a 30 percent probability of a cut in the December meeting and the full rate cut is priced in for May next year.”

The Australian dollar rose 0.5 percent to 71.79 U.S. cents as of 6:25 a.m. New York time, after climbing 1 percent in the previous two days.

The euro fell 0.3 percent to $1.0981 after appreciating 0.9 percent from Thursday through Monday. Japanese financial markets were shut Tuesday for a holiday.

A gauge of the U.S. dollar rose 0.1 percent before a report which, according to economists, will show factory orders declined in September. Analysts are speculating that the monthly employment report due Friday will show an improvement, helping convince the Federal Reserve to raise interest rates at its December meeting.

Seventeen of 29 economists surveyed by Bloomberg predicted the Australian rate decision, with the remainder forecasting a cut to 1.75 percent. Stevens’s accompanying statement noted “prospects for an improvement in economic conditions,” while acknowledging that “the outlook for inflation may afford scope for further easing” in future.

Courting Disappointment?

Swaps markets see around a 70 percent chance the RBA holds policy unchanged next month. Australia’s dollar has tumbled 17 percent in the past year, boosting the competitiveness of local industries.

“For the most part, investors are quite rightly expecting some easing in one form or the other in December,” said Raiko Shareef, a markets strategist in Wellington at Bank of New Zealand Ltd. “What this does set us up for is the possibility of quite a big disappointment if there is no easing in December.”

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