Aussie Gains, Reversing Declines, as RBA Currency Rhetoric Muted

  • Currency jumped 13% from low set in January to March 31 high
  • Stevens said last month Aussie may be getting ahead of itself

Australia’s dollar gained, reversing earlier declines, after Reserve Bank Governor Glenn Stevens held interest rates at a record low and fell short of calling for a weaker currency as some analysts had speculated he would.

Australia’s currency has climbed recently, spurred by a rebound in commodities and monetary policy movements globally, Stevens said. “Under present circumstances, an appreciating exchange rate could complicate the adjustment under way in the economy,” he added.

The Aussie had surged 13 percent from a seven-year low set in January to a nine-month high last week. Commonwealth Bank of Australia, the nation’s largest lender, estimates the currency is now strong enough to worry the central bank after becoming the most overvalued since 2014. Policy makers left their benchmark interest rate at 2 percent, as foreseen by all the economists surveyed by Bloomberg.

“Aussie is higher because the comments on the exchange rate were not as forceful as they could have been, and certainly not as forceful as many in the market expected in the lead up,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong.

The Australian dollar rose 0.2 percent to 76.16 U.S. cents as of 1:41 p.m. in Tokyo on Tuesday after earlier dropping as much as 0.5 percent.

The yen strengthened 0.4 percent to 110.90 per dollar as investors sought the safest assets. Asian equities and U.S. stock-index futures fell.

“There is a bit of a risk-off theme at present with oil prices down and equities in negative territory in the U.S.,” Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “This has seen demand for euro and yen which tend to do well in a risk-off environment. Unsurprisingly, with commodity prices down, both Aussie and kiwi are coming under some pressure.”

The Aussie “might be getting a bit ahead of itself,” Stevens said in a speech in Sydney on March 22. In the March 1 policy statement, he said the currency “has been adjusting to the evolving economic outlook.” That echoed a line the governor has used since August last year when the RBA ended more than a year of commentary indicating some depreciation may be warranted.

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