Dollar rises as hopes of rate cut fade
The local unit was trading at US94.43¢ late on Friday, up from US94.01 cents on Thursday.
RBC Capital Markets currency strategist Sue Trinh said the chances of a rate cut by the Reserve Bank before the end of the year were weakening. "The dollar has been resilient in the face of softer stocks, rallying in Asia off its lows and to a new high for the week as expectations of RBA rate cuts get pushed back," Ms Trinh said.
On Tuesday, the Reserve Bank kept the cash rate unchanged at 2.5 per cent and made little mention of the need for further rate cuts.
The local currency is also rising against a greenback hit by concerns about the continuing US budget crisis. Most parts of the US government are still closed after the Congress failed to pass the budget by the end of the American financial year, three days ago. Agreement is needed to raise the borrowing limit for the US government by October 17.
Meanwhile, bond futures prices were slightly weaker as the prospect of rate cuts diminished.
Two of Australia's biggest banks have altered their rate forecasts, and are now expecting no more cuts this year.
RBC Capital Markets fixed interest strategist Su-Lin Ong said local bonds had underperformed compared with US paper, as the situation in the Congress bubbled along with no new developments. "That uncertainty should lend some support to the bond market but the weakness in our session has been mostly about Australia so we can't really attribute it to the US or any other offshore developments," Ms Ong said.
"There's the ongoing debate about the RBA and increasingly there is a market that thinks the RBA's done and that probably weighed on bonds."
At the local close on Friday, the December 10-year bond futures contract was trading at 96.005 (implying a yield of 3.995 per cent), down from 96.100 (3.900 per cent) on Thursday. The three-year contract was at 97.000 (3.00 per cent), down from previous local close of 97.050 (2.950).
AAP
Frequently Asked Questions about this Article…
The Australian dollar climbed as traders scaled back expectations for Reserve Bank of Australia (RBA) rate cuts this year and the greenback was weakened by concerns around the ongoing US budget crisis. RBC Capital Markets strategist Sue Trinh said the AUD was resilient and rallied as expectations of RBA cuts got pushed back.
The article reported the Australian dollar trading at US94.43 cents late on Friday, up from US94.01 cents on Thursday.
The Reserve Bank kept the cash rate unchanged at 2.5% and made little mention of the need for further cuts. That contributed to markets weakening the odds of a rate cut this year, and two of Australia’s biggest banks subsequently altered forecasts to expect no more cuts this year.
RBC Capital Markets currency strategist Sue Trinh said the AUD rallied as expectations of RBA cuts were delayed. RBC fixed interest strategist Su‑Lin Ong noted local bonds had underperformed compared with US paper and said domestic factors had weighed on Australian bond performance.
The article says the US budget crisis knocked the US dollar lower — parts of the US government remained closed after Congress failed to pass the budget, and lawmakers must agree to raise the borrowing limit by October 17. That uncertainty supported the AUD’s rise against a troubled greenback.
At the local close on Friday, the December 10‑year bond futures contract traded at 96.005 (implying a yield of 3.995%), down from 96.100 (3.900%) on Thursday. The three‑year contract was at 97.000 (3.00%), down from 97.050 (2.950%).
Yes. The article highlights that traders scaled back chances of an RBA rate cut after the bank left rates at 2.5% with little indication of further cuts, and two major Australian banks have adjusted forecasts to expect no more cuts this year.
Investors should watch RBA communications and any further guidance on interest‑rate policy, developments in the US budget negotiations (including the borrowing‑limit deadline), and movements in Australian bond futures and yields — all of which were highlighted as drivers in the article.
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