Dollar dips as market waits on RBA
Late on Friday, it was trading at US93.61¢, down from US93.89¢ on Thursday. A recent rally by the Aussie means the RBA could adopt an easing bias when it releases its statement accompanying the cash rate decision on Tuesday, Easy Forex currency dealer Tony Darvall said.
The Australian dollar was below US90¢ at the beginning of this month, but rallied above US95¢ after the US Federal Reserve decided not to taper its economic stimulus program.
"The RBA is likely to be dovish, given the rise in the Aussie dollar," Mr Darvall said.
"No one really expects them to cut, but if they come out with an obvious dovish bias or they explicitly talk about the Aussie dollar being important for the continued strengthening of the Australian economy or something along those lines - that sort of talk will get the market selling.
"In anticipation of that, there may be selling and at the moment, the Aussie is under pressure."
The Aussie was at 92.30 Japanese yen, down from Thursday's close of 92.91 yen, and at 69.37 euro cents, down from 69.45 euro cents.
Australian bond futures prices were higher, driven by the US debt ceiling debate, which could force a US government shut-down.
The US Congress and the White House are negotiating to raise the US government's debt ceiling and reach a short-term budget agreement before the financial year ends on September 30.
Failure to reach an agreement could force parts of the US government to be shut down.
Deutsche Bank fixed income strategist David Plank said the bond market rebounded on concerns over the conversations over the weekend in the US.
The December 10-year bond futures contract was trading at 96.085 (implying a yield of 3.915 per cent), up from 96.060 (3.940 per cent) on Thursday.
The December three-year bond futures contract was at 97.090 (2.910 per cent), up from 97.070 (2.930 per cent).
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The Australian dollar fell slightly as markets anticipated the Reserve Bank of Australia (RBA) might adopt an easing bias. Currency dealers said the recent rally in the Aussie could prompt dovish comments from the RBA, and if the bank signals concern about the currency or hints at easing the market may sell the currency, putting the Aussie under pressure.
Late on Friday the Aussie was trading at about US93.61¢, down from US93.89¢ on Thursday. Earlier in the month the Australian dollar had been below US90¢ but rallied above US95¢ after the US Federal Reserve chose not to taper its economic stimulus program.
Tony Darvall said the RBA was likely to be dovish given the rise in the Aussie. He noted that while no one really expects an immediate rate cut, an obvious dovish bias or explicit talk about the Aussie’s role in the economy could trigger market selling and put downward pressure on the currency.
According to the report, the Aussie was trading at about 92.30 Japanese yen, down from Thursday’s close of 92.91 yen, and at about 69.37 euro cents, slightly down from 69.45 euro cents.
Australian bond futures were higher due to concerns around the US debt ceiling debate. Market participants worried about the possibility of a US government shutdown, and Deutsche Bank’s fixed income strategist said the bond market rebounded on those concerns over weekend talks in the US.
The December 10-year bond futures contract was trading at 96.085, implying a yield of about 3.915%, up from 96.060 (which implied around 3.940%). The December three-year bond futures contract was at 97.090 (about 2.910%), up from 97.070 (around 2.930%).
The article notes US Congress and the White House were negotiating to raise the US debt ceiling and reach a short-term budget deal before the financial year ends on September 30. Failure to reach an agreement could force parts of the US government to shut down, which in turn can increase volatility in bond markets and influence global sentiment — a dynamic that pushed Australian bond futures higher in the report.
Investors should watch for any dovish language or explicit mention of the Aussie dollar’s impact on the economy. The article highlights that such comments could prompt selling of the currency and affect short-term market moves, so the RBA’s tone and guidance accompanying the cash rate decision are key for currency and bond market reactions.
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