WSJ:Australian Dollar Higher As Rate Cut Hopes Fade
By JAMES GLYNN
SYDNEY—The Australian dollar Thursday rose to its highest level in a week as investors continued to respond to the news this week of strong China industrial production and reduced their bets that the Reserve Bank of Australia will cut interest rates next month.
Inflation data for the third quarter released Wednesday suggested price pressures were stronger than thought in the quarter, forcing economists to revise lower the chance of a cut on Nov. 6 when the Reserve Bank of Australia's board next meets.
"Reduced confidence in a Melbourne Cup day RBA rate cut, introduced by the stronger-than-expected [third quarter] CPI report, is supporting the Australian dollar," said Ray Attrill, currency strategist at National Australia Bank.
At 0630 GMT, the Aussie dollar was buying US$1.0377 compared with an intraday low of US$1.0335 and US$1.0315 late Wednesday.
John Horner, debt strategist at Deutsche Bank said that even after the CPI and the China data, financial markets in Australia still are pricing in an interest-rate cut by the year's end, with a further cut likely by March 2013.
"There is, in our view, an increased prospect of a further unwind of market pricing in the near-term given sentiment on Chinese prospects appears to be turning as policy there is relaxed, brightening the outlook for Australian dollar," he said.
Upbeat forecasts for the Australian dollar have emerged over the week.
Citi's top currency strategist Steven Englander said this week the Australian dollar could go to a fresh post-float high soon, driven by ultra loose monetary policy in the U.S. and increased buying from central banks around the world.
A rebound in China's economic growth will drive commodity prices higher, clearing the way for the Australian dollar to break its post-float record above US$1.1081 set in July 2011, Mr. Englander said.
Elsewhere Thursday, Standard & Poor's Ratings Services changed its outlook on triple-A rated states New South Wales and Western Australia to negative citing a deteriorating fiscal outlook and falling iron ore prices.
"These capital expenditure pressures, combined with our view of the state's moderate budgetary performance, lead to our opinion that New South Wale's budgetary flexibility may become increasingly challenged," said Claire Curtin, an analyst at S&P.
