Dollar dives as rate cuts stay on agenda
The dollar was trading at US102.98¢, down from US103.30¢ on Thursday. During local trade, it dropped as low as US102.56¢, its lowest level since October 24.
In its quarterly statement on monetary policy, the Reserve Bank said the mining investment boom would peak this year and consumer confidence was still relatively weak.
The RBA downgraded its growth forecasts for this year and said inflation was expected to be between 2 per cent and 3 per cent, matching its target range.
"The inflation outlook would afford scope to ease policy further, should that be necessary to support demand," the Reserve Bank said. Forex.com analyst Chris Tedder said retail spending and other non-mining related economic data in Australia had been disappointing.
"The disparity between resource-based industries and the rest of the economy may be causing the [RBA] board some sleepless nights," he said.
Mr Tedder said the RBA's willingness to cut rates, if needed, will continue to weigh on the dollar.
"Evidence of this can be seen in the pair's inability to push back above US103¢ after the impressive Chinese trade data."
On Friday afternoon, official figures showed that China's trade surplus rose 7.7 per cent year-on-year to $US29.2 billion, a sign, Mr Tedder said, that the world's second largest economy was recovering.
Bond futures prices were weaker after the release of Chinese trade data negated an earlier rally.
Late on Friday, the March 10-year bond futures contract was trading at 96.550 (implying a yield of 3.450 per cent), down from 96.555 (3.445 per cent) on Thursday. The three-year contract was at 97.180 (2.820 per cent), down from 97.190 (2.810 per cent).
RBC Capital fixed income and currency strategist Michael Turner said the market rallied slightly on the release of the RBA's statement.
"But we've just drifted off into the afternoon," he said.
"The catalyst was the Chinese trade data, not that there's a particularly strong link given how volatile those data are for January."
Frequently Asked Questions about this Article…
The Australian dollar fell to a 3½‑year low after the Reserve Bank of Australia signalled the door was open to further interest rate cuts. The RBA's quarterly statement downgraded growth forecasts and said inflation was expected to be within the 2–3% target range, giving scope to ease policy if needed — news that weighed on the currency.
The article reported the Australian dollar trading at US102.98¢, down from US103.30¢. During local trade it dropped as low as US102.56¢, its lowest level since October 24.
The RBA downgraded its growth forecasts and said inflation was expected to be between 2% and 3%, matching its target range. It also said that this inflation outlook would afford scope to ease monetary policy further if necessary, which signalled the possibility of future rate cuts.
Forex.com analyst Chris Tedder said the RBA's willingness to cut rates, if needed, will continue to weigh on the Australian dollar. He noted disappointing retail and other non‑mining data and highlighted the disparity between resource industries and the rest of the economy as a concern for the RBA board.
Yes. Official figures showed China's trade surplus rose 7.7% year‑on‑year to US$29.2 billion, which was a sign of recovery. However, Tedder said the dollar still couldn't push back above US103¢ despite the strong Chinese trade data, and RBC Capital's Michael Turner noted the Chinese data was the market catalyst but warned January trade numbers can be volatile.
Bond futures were weaker after the Chinese trade data negated an earlier rally. The March 10‑year bond futures contract was trading at 96.550 (implying a yield of 3.450%), down slightly from 96.555 (3.445%). The three‑year contract was at 97.180 (2.820%), down from 97.190 (2.810%).
The RBA said the mining investment boom would peak this year and noted consumer confidence was still relatively weak. Analysts also pointed to disappointing retail spending and weak non‑mining economic data outside resource sectors.
RBC Capital strategist Michael Turner said markets briefly rallied on the RBA statement but then drifted, adding that the real catalyst for the afternoon move was Chinese trade data — which he cautioned isn't necessarily a strong link because January trade data can be volatile.
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