TA:Australian dollar rises sharply on European moves to boost liquidity
THE Australian dollar rose sharply today, buoyed by co-ordinated central bank moves to support liquidity in the European banking system, traders said.
Hopes were also high that this weekend's meeting of European finance ministers in Poland, with US Treasury Secretary Timothy Geithner also in attendance, would result in steps to support Greece, or potentially outline ways to bring about an orderly default on Greek sovereign debt should it take place.
The upbeat mood was reflected in strong equities across the Asian region, albeit the gains were posted on low volumes.
At 4.30pm AEST, the Australian dollar was at $US1.0336, up from $US1.0215 late yesterday. Against the Japanese yen, it was up to Y79.40 from Y78.32.
Attention is focused on Mr Geithner's presence at the meetings in Poland, amid expectations he will pursue moves to bolster the European Financial Stability Facility.
Grant Turley, senior currency strategist at ANZ Bank, said actions by policy makers in Europe boosted confidence. The move by central banks overnight to open US dollar swap lines is a practical step toward easing liquidity concerns, he said.
"It is important to see that the central banks are willing to act pre-emptively. It's a costless way of trying to get ahead of potential problems," Mr Turley said.
With regard to Greece, he said some kind of default looks inevitable. The task for policy makers is to find ways to make it as orderly as possible.
Looking into next week, a meeting of the US Federal Open Market Committee and speeches by senior policy makers at the Reserve Bank of Australia will shape trading, traders said.
Deutsche Bank chief economist Adam Boyton said the RBA is likely to cut interest rates as the world environment sours, but financial markets are pricing in far too many cuts over the near-term.
"Of the dollar-bloc central banks, the RBA has the most scope to cut, but in our view the Australian front-end is pricing another financial crisis with essentially 100 per cent certainty," Mr Boyton said.
"While we think the next move by the RBA is down, we think the hurdle for multiple rate cuts in a short space of time is high," he added.
