By Carla Mozee, MarketWatch
LOS ANGELES (MarketWatch) — The Australian dollar dropped against its U.S. counterpart Tuesday after Australia’s central bank cut its key interest rate, a move unexpected by most economists.
The Australian dollar AUDUSD -0.58% traded at $1.0187, swiftly falling from $1.0237 just before the Reserve Bank of Australia reduced its policy cash rate by a quarter-percentage point to 2.75%. The Aussie was at $1.0252 late Monday.
A survey conducted by The Wall Street Journal showed just 2 of 18 economists had expected the central bank to cut the rate from 3%, where it had stood since December. But ahead of Tuesday’s decision, market pricing reflected 50-50 odds the rate would be pulled lower.
In a statement, RBA Gov. Glenn Stevens cited “below trend” economic growth and inflation “consistent with the target and, if anything, a little lower than expected.”
The Aussie also came into focus ahead of the rate decision as an unconfirmed rumor swirled in the market that billionaire George Soros was shorting the currency, betting that a rate cut would take place.
Anticipation for a rate cut among market players grew Monday after the Australian government reported an unexpected decline in March retail sales. Sales fell by a seasonally adjusted 0.4%, and economists had been looking for sales to rise 0.1%. Sales in February had risen 1.3%.
The latest rate cut is unlikely to be the RBA’s last, in part as “the domestic reporting season was indicative of the softness in the real economy,” said Matthew Sherwood, head of investment market research at Perpetual.
Yen, euro inch higher
In other action Tuesday, the U.S. dollar USDJPY -0.27% bought 99.09 Japanese yen, down from ÂĄ99.34 on Monday.
The greenback had climbed against the yen during Monday’s session, extending its hefty gain on Friday in the wake of a stronger-than-expected U.S. jobs report for April.
The weaker yen on Tuesday bolstered Japanese stocks JP:NIK +3.38% as investors returned to the market after a four-day weekend.
Meanwhile, the euro EURUSD +0.05% bought $1.3083, up from $1.3073 late Monday.
The shared currency fell below the $1.31 level Monday after European Central Bank President Mario Draghi said the central bank is ready for further action if needed, and that the ECB’s recent rate cut was prompted by the economic slowdown in the core of the euro zone.
The remarks were similar to those he made on May 2 after the ECB cut its main refinancing rate by a quarter-percentage point to 0.5%.
The British pound GBPUSD +0.00% traded at $1.5545, higher than $1.5539 on Monday.
The ICE dollar index DXY -0.10% , a measure of the greenback’s moves against six other major currencies, fell to 82.273 from 82.122 on Monday.
The WSJ Dollar Index XX:BUXX -0.01% , a rival gauge of the currency’s moves against a slightly wider basket, was unchanged at 73.66.
Carla Mozee is a reporter for MarketWatch, based in Los Angeles. Follow her on Twitter @MWMozee.
