MW: Dollar inches down, Aussie rises after rate cut
By William L. Watts and Michael Kitchen, MarketWatch
FRANKFURT (MarketWatch) — Currency markets exhibited an antipodean feel Tuesday, with the Australian dollar stealing the show as it rallied on signs the country’s central bank may pause its easing cycle, while the New Zealand dollar came along for the ride.
Other major currencies saw subdued activity, while the ICE dollar index DXY -0.28% , which measures the greenback against a basket of six other currencies, inched down to 79.670 from 79.909 in late North American trade Monday.
The Aussie AUDUSD +0.57% rose to $1.0475 from late Monday’s $1.0413 after the Reserve Bank of Australia (RBA) took its benchmark rate a quarter-point lower to 3.0%, as expected. Read: Australia cuts rates back to crisis-era low
While RBA Gov. Glenn Stevens said in his statement accompanying the decision that the currency remained at a relatively high level “given the observed decline in export prices and the weaker global outlook,” markets bid the Australian dollar higher.
RBC currency strategist Sue Trinh attributed the currency’s gains to hints from Stevens that policy may be on hold for a while going forward.
“The accompanying statement was hawkish, with the RBA dropping the phrase ‘for the time being,’ and there was also no reference to ‘further easing may be appropriate in the period ahead,’ which was in the November minutes,” Trinh said.
The RBA isn’t due to meet again until February.
“As the RBA does not meet in January, there is clearly a lot that can happen in between now and the next meeting, and so although we are not forecasting a cut in February at the moment, we are cognizant that the RBA will be firmly in data watch mode,” said Christian Lawrence, currency strategist at Rabobank International in London. “Furthermore, the resilience of [the Australian dollar] is likely to play a role too, given that a selloff would act as a de facto easing of monetary policy.”
The U.S. dollar extended weakness from Monday trading, when it fell as optimism over Greece and an upbeat Chinese manufacturing survey undercut its safe-haven appeal. Read: Greek hopes, China data undercut dollar
The euro EURUSD +0.38% , meanwhile, stood its ground, buying $1.3075, up from late Monday’s $1.3054.
Trinh said the European currency was receiving support from the kickoff of Greece’s bond buyback program, meant to cut the nation’s debt load and comply with requirements for its next aid payment.
The euro “has held on to the bulk of its recent gains…[and] pullbacks since the announced Greek buyback deal have been shallow. Our interpretation of the deal is that it has been designed to succeed, and thus Greece will get the formal nod of approval for disbursement of aid for the Eurogroup,” Trinh wrote in a note to clients.
BK Asset Management managing director Kathy Lien saw possible upside for the unit, depending on what happens in the debt market, suggesting “traders should keep eyes on European bond yields and the [euro’s] five-month high at $1.3170.”
Among other major currency pairs, the Japanese yen rose modestly, with the dollar USDJPY -0.53% slipping to ¥81.99 from ¥82.19.
The British pound GBPUSD +0.22% , meanwhile, changed hands at $1.6123, up from $1.6092 late Monday.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Follow him on Twitter @wlwatts.
Michael Kitchen is Asia editor for MarketWatch and is based in Los Angeles.
