Rates At 0600 GMT
Latest Change
AUD/USD 1.0474 +0.43%
AUD/JPY 80.495 +0.37%
6.50% May, 2013 3.7852% +0.0062
4.50% April, 2020 4.4797% +0.0106
10-Yr Spread To U.S. +224bps -2 bps
SFE Sep 3-Year Futures 96.09 unch
SFE Sep 10-Year Futures 95.45 unch
SYDNEY (Dow Jones)--The Australian dollar edged slightly higher Tuesday on the back of strong stocks across the world, though concerns grew about the state of the local economy.
Weighing on sentiment locally, in minutes from its early August policy meeting, the Reserve Bank of Australia said global instability underpinned its decision to keep interest rates on hold at 4.75%, adding that sustained market volatility will hit confidence and could ease inflation concerns. The comments came on the same day the nation's largest airline Qantas, as well as steel producer OneSteel, both disclosed upcoming job cuts.
While the developments would typically weigh on the Australian dollar, the currency was boosted by improving risk sentiment that had stocks across Asia slightly higher following a more than 200-point gain in the Dow Jones Industrial Average.
"(The Australian dollar) is back to watching stocks," said David Scutt, a treasury dealer at Arab Bank.
At 0600 GMT, the Australian dollar was at US$1.0474, up from US$1.0429 late Monday. Against the Japanese yen, the Australian dollar was at Y80.495, up from Y80.20.
For those hoping the local currency could return to the levels it was trading just a few weeks before, prior to the downgrade of the U.S. credit rating by Standard & Poor's, more gains in stocks are needed, said John Kyriakopoulos, head of foreign exchange strategy at National Australia Bank.
At the height of the market concern last week, interest rate traders were pricing in 170 basis points of rate cuts from the RBA in the next year, though that has fallen to 120 basis points of cuts in recent action.
"We suspect that further gains in global stock markets and better Australian economic data will be needed to trigger a complete unwinding of RBA rate cuts and push (the Australian dollar) to US$1.0800," said Kyriakopoulos.
Economists said that while growth concerns have escalated, the pricing remains too bearish given the RBA's public comments.
"There are significant downside risks to growth and there is much uncertainty in regards to the debt issues abroad. Thus, there is a growing likelihood of an RBA rate cut, although not as much as what markets are pricing in," said Janu Chan, an economist with St. George Bank.
-By Geoffrey Rogow, Dow Jones Newswires; +61-2-8272-4686; geoffrey.rogow@dowjones.com
