WSJ:Australian Dollar Up Late, Near Highest Level Since Early Sep
Rates At 0515 GMT
Latest Change
AUD/USD 1.0677 +1.83%
AUD/JPY 81.025 +1.62%
6.50% May, 2013 4.0482% +0.0629
4.50% Mar, 2020 4.4690% +0.0489
10-Yr Spread To U.S. +215 bps -3 bps
SFE Dec 3-Year Futures 96.03 -0.08
SFE Dec 10-Year Futures 95.42 -0.055
SYDNEY (Dow Jones)--The Australian dollar surged Friday, at one point hitting its highest level in more than a month, as investor confidence grew after European leaders introduced an outline of a plan to contain the region's debt crisis.
Still, the Australian dollar gains did reverse somewhat as the session wore on, with the currency still dependent on an upcoming interest rate decision by the country's central bank. Economists were largely split on what the Reserve Bank of Australia would do on Tuesday, with a weak reading on inflation earlier in the week giving the bank scope to cut rates.
At the same time, a breakthrough in Europe means a rate cut may not be necessary.
Strategists at BNP Paribas said that given the market is almost fully pricing in a 25 basis point cut by the RBA even though economists are largely split on what to expect, there is significant risk that the Australian dollar could surge in the near term even beyond its U.S. session high of US$1.0753. A decision from the RBA to hold steady, could see the currency once again near its 30-year highs above US$1.1000 from July, said BNP.
At 0515 GMT, the Australian dollar was at US$1.0677, up from US$1.0485 late Thursday. Against the yen, the currency changed hands at Y81.025, up from Y79.73.
The sentiment from BNP was echoed by economists at Citigroup, who noted that market pricing of more than 100 basis points of rate cuts over the next year appeared to be misguided.
Among its reasoning is still low unemployment and the potential that if global growth and commodity prices rebound, the bank may have to reverse any fine tuning cut.
"We do not expect the cut in official interest rates to herald the start of full easing cycle," said Citigroup chief economist Paul Brennan.
-By Geoffrey Rogow, Dow Jones Newswires; +61-2-8272-4686; geoffrey.rogow@dowjones.com
