THE Australian dollar was sharply lower in Asia today after a tumultuous session in New York rocked riskier, or high-yielding, currencies and sent bond futures soaring.
Analysts said the local currency, traded as a proxy for growth, should regain some ground from here and bonds may sell off as the worst of the risk-aversion on the back of Europe's debt crisis and global stock losses passes.
Dealers are now looking to US non-farm payrolls later for a health check on the world's largest economy and for some certainty from the UK general election, which looks to be heading towards a hung parliament.
TD Securities Strategist Roland Randall expects the Australian dollar to trade back towards US$0.90.
“That is dependent on there being no further negative news out of Europe,” he said. For rates futures, Mr Randall said the peak in their gains has likely passed. “The rally in bonds will be reversed a little further from these levels.”
Locally, the Reserve Bank of Australia's upgrading of its growth and inflation outlook passed by the market completely, but Westpac strategist Robert Rennie said the RBA is clearly signalling more rate hikes.
“Rates clearly need to go above-average if you have a situation where inflation is at the top end of the band and growth is above trend.”
He said the near-term outlook will be driven by events offshore.
“Short term swarms the medium term outlook,” he said.
Inflation is likely to remain at or above the upper end of the RBA's 2-3 per cent target band over the central bank's forecast horizon through 2012, the RBA said. Consumer price index inflation will exceed the target band by mid-2010, rising to 3.25 per cent from 2.9 per cent now, it said.
At 0550 GMT, the Australian dollar was quoted at $US0.8870, down from $US0.9037 late yesterday. Against the Japanese yen, the Australian dollar was at 81.605 yen, down from Y84.805.
The June three-year spot contract rose a huge 19 ticks to 95.01, having touched an intraday high of 95.09, while 10-years rose 9 ticks to 94.55, below their intraday high of 94.64.
Australian interest rate futures' massive push higher on the back of global market turmoil could have run out of steam for now, and quite possibly they could even retrace, said ANZ Strategist Tony Morriss.
“I see some scope for some moderate correction,” Mr Morriss said.
