Aussie Drops as Rate-Cut Bets Survive Stevens’s Flexibility Talk

The Australian dollar had its biggest drop in almost a week after comments from central bank governor Glenn Stevens did little to diminish expectations for further policy easing.

The Aussie slid versus 14 of its 16 major peers as Stevens said that the Reserve Bank’s inflation target was not rigid, but provided sufficient flexibility for sound decision-making. He also supported the current framework of targeting price increases in a band of 2 percent to 3 percent.

“The Stevens comments look like they are helping the Australian dollar under-perform on the move lower,” said Daniel Been, a Sydney-based currency strategist at Australia & New Zealand Banking Group Ltd. While Stevens emphasized the flexibility of the inflation target, “he probably did not do enough to make the market think that the board is done.”

The Aussie dropped 0.4 percent to 71.98 U.S. cents as of 2:27 p.m. in Sydney, heading for the biggest decline since May 18. The RBA lowered the cash rate to 1.75 percent from 2 percent this month. The median estimate of economists in a Bloomberg poll is for another cut to 1.5 percent in August.

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