‘Aussie’ drops as central bank cuts interest rate
THE Australian dollar slid to a threeweek low against its US counterpart yesterday after the Reserve Bank of Australia (RBA) unexpectedly lowered its key interest rate to the lowest since 2009.
The so-called Aussie dropped at least 0.4% versus all 16 of its major peers as a global slowdown weakens commodity prices that have helped drive 21 years of growth. The yen fell amid speculation Japan may act to weaken its currency.
The Aussie is “clearly reacting to the RBA overnight with this drop,” said Chris Walker, a currency strategist at UBS in London. “We still think it’s going lower and moving back towards parity.”
The Australian dollar fell 0.6% to $1.0303 in early trade yesterday, after touching $1.0292, the lowest level since September 7.
The yen slipped 0.5% to 100.99 to the euro and lost 0.3% to 78.19 to the dollar. The 17-member euro added 0.2% to $1.2916.
Australia’s central bank resumed cutting its benchmark interest rate to revive demand outside of a resource boom that may crest at a lower level than previously expected, sending the nation’s currency to a three-week low. The RBA board lowered the overnight cash-rate target by a quarter of a percentage point to 3.25%, the central bank said in Sydney yesterday.
“The peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected,” RBA governor Glenn Stevens said. “As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur.”
Mr Stevens’s gloomier outlook marked a reversal for a central bank governor who said after a June speech that he felt the need to do some “cheerleading” on the economy to rebut vocal pessimists. He yesterday signalled weaker growth at home and abroad, reflected in lower prices for the key exports of iron ore and coal, as Europe’s fiscal crisis weighs on global growth.
“The RBA has rejoined other central banks around the world in what is becoming an increasingly coordinated policy response to anaemic growth,” said Jarrod Kerr, Australian rates strategy director at Credit Suisse Group in Singapore.
The yen slid against all of its 16 major peers except the Australian dollar after new Japanese Finance Minister Koriki Jojima said the government would “take bold actions against the currency’s excessive moves, if necessary”.
His comments echoed those used by predecessor Jun Azumi, signalling that intervention in currency markets remains an option.
The euro was at 1.2916 to the dollar before the close yesterday, ahead of data today that economists said will show European retail sales fell 0.1% in August from July, when they slipped 0.2%. Figures on Monday showed unemployment in the eurozone climbed to a record 11.4% in August.
The European Central Bank (ECB) will keep its main refinancing rate unchanged at a record low of 0.75% tomorrow and will reduce it by the end of the year, a survey of economists showed.
Spain’s Economy Minister Luis de Guindos said on Monday the country is pressing on with its analysis of whether to seek a bail-out, moving beyond his call last week that the European Union needed to pro- vide more guidance on conditions.
Some analysts expect Spain to ask for help as early as this weekend. Following a meeting with Economic and Monetary Affairs Commissioner Olli Rehn in Madrid, Mr de Guindos said Spain was studying an ECB proposal to push down cash-strapped member states’ borrowing costs by buying their bonds.
Spanish Prime Minister Mariano Rajoy, who spent six months campaigning for ECB president Mario Draghi to buy bonds, has been weighing the benefits of seeking aid since August 2.
“If Spain decides to ask for a bailout, that’s a positive factor for the euro,” said Noriaki Murao, New York-based MD of the marketing group at the Bank of TokyoMitsubishi. “That could reduce risks of a euro break-up.”
The euro has lost 2.9% over the past six months, the biggest drop after the Swiss franc among 10 developed-nation currencies tracked by Bloomberg. The dollar rose 0.5% and the yen jumped 6%. The Aussie has depreciated 0.8%. Bloomberg