Aussie slips after RBA delivers widely-expected rate cut
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar edged higher versus most major rivals Tuesday, slightly extending a gain versus the euro scored late the previous day after Standard & Poor’s Ratings Services placed 15 euro-zone countries on a negative “credit watch.”
The euro EURUSD +0.03% traded at $1.3373, down from $1.3386 in North American trade late Monday.
The dollar index DXY -0.05% , which measures the U.S. unit against a basket of major rivals, edged up to 78.753 from 78.654.
The dollar USDJPY -0.15% fetched 77.70 Japanese yen, down from ¥77.80. The safe-haven yen rose versus most rivals, benefitting as the S&P action dented risk appetite.
The move by S&P killed a risk rally that had been fueled in part by a pledge by German Chancellor Angela Merkel and French President Nicolas Sarkozy to quickly seek a new treaty that would automatically impose sanctions on violators of the euro-zone’s fiscal rules.
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S&P puts euro zone on ‘credit watch’
Standard & Poor's late Monday puts 15 nations in the euro zone on negative "credit watch," signaling a downgrade within 90 days has 50-50 odds.
“The impact of the move ... comes from its timing — just when Sarkozy and Merkel were trying to conjure up yet another rabbit from their hat to save the euro,” said Kit Juckes, head of foreign exchange at Societe Generale. “The positive mood created by comments over the weekend and yesterday has been replaced by renewed gloom.”
The warning applied to triple-A Germany and France and all other euro members other than Cyprus, which was already on negative watch, and Greece, whose CC rating already implies a high probability of default.
Italian and other euro-zone government bonds fell, pushing yields higher.
The Australian dollar AUDUSD -0.28% , meanwhile, fell 0.5% versus its U.S. counterpart to change hands at $1.0197.
The Reserve Bank of Australia, as expected, cut its key lending rate by a quarter of a percentage point to 4.25%, citing worries about Europe’s sovereign debt crisis and moderating domestic inflation worries. Australia cuts rates, citing global growth fears
“Despite the RBA rate cut, AUD/USD remains the highest yielding currency pair in the G-20 universe and as such will continue to trade in sync with risk flows even as its rate advantage compresses slightly,” said Boris Schlossberg, director of currency research at GFT.
The British pound GBPUSD -0.07% changed hands at $1.5632, little changed from $1.5637 late Monday.
William L. Watts is a reporter for MarketWatch in Frankfurt.
