Aussie Dollar Climbs as RBA Holds Rate Steady Amid Low Inflation

Updated on
  • RBA ‘is not giving any direction to cut rates’ soon: ABN Amro
  • Yen pares loss after Abe adviser says BOJ should wait for Fed

Australia’s dollar rose for a fifth day as the country’s current-account deficit narrowed and its central bank kept interest rates steady at a policy meeting, as economists had forecast.

The Aussie’s longest rally since March has added more than 1.7 percent to its value against the U.S. dollar. The South Pacific nation’s currency has gained against nine of its 10 major
peers this quarter. 

Reserve Bank of Australia Governor Glenn Stevens issued his tersest statement in more than a year Tuesday as he held the cash rate target steady at 1.5 percent in his final meeting before retirement. Following the decision, the local dollar pared some of the gains made after data showed the country’s second-quarter current-account deficit was narrower than economists estimated.

“The RBA is not giving any direction to cut rates anytime soon,” said Roy Teo, a senior currency strategist at ABN Amro Bank NV in Singapore. “Given the move up pre-RBA, I think the markets are just using the opportunity to take some profits off the table.”

The Australian dollar rose 0.8 percent to 76.40 U.S. cents as of 10:24 a.m. in London, heading for the biggest daily gain since Aug. 2 on a closing basis.

Australia’s current-account deficit was A$15.5 billion ($11.8 billion) in the quarter, less than the A$20 billion predicted in a Bloomberg survey. Net exports cut 0.2 percentage point from gross domestic product. The full second-quarter economic growth data will be reported Wednesday.

“Our view is there is a case for a rate cut this year, given that you’ve already seen the strong exchange rate has had an impact on net exports which was direct to GDP in the second quarter,” ABN Amro’s Teo said.

Stevens Swansong

The Australian currency is underpinned as commodity prices have regained some of their losses, and the economy in China, Australia’s biggest trading partner, appears to be stabilizing. Slower U.S. jobs growth in August also helped the Aussie as it weakened the case for the Federal Reserve to raise interest rates at its Sept. 20-21 meeting.

Stevens said in his statement the inflation rate remains quite low and is expected to remain so for some time. He also reiterated that an appreciating exchange rate could complicate economic adjustments that are assisting the economy.

“The fact that there is no explicit easing bias in the statement doesn’t mean there isn’t an implicit one,” said Ray Attrill, global co-head of foreign-exchange strategy at National Australia Bank Ltd. in Sydney.

Wait For Fed

The yen pared a decline after an economic adviser to Japan’s Prime Minister Shinzo Abe, Koichi Hamada, said the central bank should wait until the Federal Reserve decides on interest rates before acting itself. The Bank of Japan wraps up a two-day policy meeting on Sept. 21 and the Fed follows suit just hours later. The yen was little changed at 103.33 per dollar, having weakened as much as 0.4 percent earlier.

“Hamada is Abe’s adviser, so the market cares about what he says,” said Simon Pianfetti, a senior manager at the market solutions department at SMBC Trust Bank Ltd. in Tokyo. “Liquidity is still thin after the Labor Day holiday,” exaggerating the move in the yen, he said.