TA:Australian dollar hits 19-month high against yen
The Aussie hit an intraday high of 88.98 yen, its strongest level since May 2011, after the Liberal Democratic Party swept to victory yesterday. Shinzo Abe, head of the LDP, made strong campaign pledges for an aggressive new monetary policy, big public works spending to pump up growth, and a harder line against China in territorial disputes.
Still, Bank of America Merrill Lynch's Australian chief economist Saul Eslake said the LDP's promise of a tougher foreign policy stance against China "might make people more nervous about the region as a whole" and so weaken the Australian currency in the long term. "If capital were to leave this (regional) time zone, that would be bad for the Australian dollar," he added.
In late trade, the Australian dollar had retreated to 88.55 yen and was trading at $US1.0533, down from $US1.0549 in late local trade Friday.
Locally, investors are waiting to see the minutes from the Reserve Bank of Australia's December meeting, due tomorrow, to gauge how far and how fast the central bank will lower rates next year.
The Australian central bank cut its benchmark lending rate by a quarter of a percentage point to 3 per cent on December 4, matching a low hit in the aftermath of the global financial crisis.
Some traders interpreted the absence of commentary at the time on the future direction for rates as signalling the December cut will be the last for some time. But others expect further deep cuts as a fading mining boom weighs on the resource-rich economy.
ANZ Bank economists today forecast the RBA will cut its cash rate by one percentage point in the next 12 months to a record low of 2 per cent.
Royal Bank of Canada fixed income strategist Michael Turner said the market remained divided over what course the RBA will take next year as it seeks to boost growth in parts of the economy hurt by the strong currency, and help offset concerns about an uncertain global environment.
A key worry is the approach of the so-called fiscal cliff in the US, a set of tax increases and spending cuts set to kick in early next year. Some economists warn that could tip the US into recession.
Mr Eslake said Bank of America Merrill Lynch expects the Australian dollar to fall to US96 cents by the end of next year, or even further if the current policy impasse in the US isn't resolved.
