Australian Dollar Retreats On RBA's Surprise Rate Cut
May 02 2016 - 10:02PM
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The Australian dollar retreated from early highs against the
other major currencies in the Asian session on Tuesday after the
Reserve Bank of Australia lowered its key rate unexpectedly by 25
basis points as inflationary pressures were weaker than
projected.
The board of the Reserve Bank of Australia governed by Glenn
Stevens reduced its benchmark cash rate to a record low 1.75
percent from 2.00 percent, effective May 4. This was the first
reduction since May 2015, when the bank cut it by a quarter point.
Economists were expecting the bank to keep rates unchanged
today.
The Board judged that prospects for sustainable growth in the
economy, with inflation returning to target over time, would be
improved by easing monetary policy at this meeting.
In other economic news, data from the Australian Bureau of
Statistics showed that the total number of building approvals
issued in Australia was up a seasonally adjusted 3.7 percent on
month in March, coming in at 19,371. That beat forecasts for a
decline of 2.0 percent following the 3.1 percent gain in
February.
On a yearly basis, consents fell 6.5 percent, also beating
expectations for a decline of 14.0 percent following the 9.0
percent contraction in the previous month.
Data from Caixin showed that the manufacturing sector in China
continued to contract in April, and at an accelerated pace, with a
Performance of Manufacturing Index score of 49.4. That missed
forecasts for 49.8, and it was down from 49.7 in March.
The Australian dollar traded higher against its major rivals in
the early Asian session and weakened post the RBA rate
decision.
In the late Asian session, the Australian dollar fell to a 6-day
low of 0.7556 against the Canadian dollar and nearly a 6-month low
of 0.9464 against the Canadian dollar, from early 6-day highs of
0.7719 and 0.9654, respectively. If the aussie extends its
downtrend, it is likely to find support around 0.74 against the
greenback and 0.93 against the loonie.
Against the yen, the euro and the NZ dollar, the aussie dropped
to more than 2-month lows of 80.02, 1.5264 and 1.0789 from early
4-day highs of 81.95, 1.4936 and 1.0945, respectively. The aussie
may test support near 79.00 against the yen, 1.56 against the euro
and 1.07 against the kiwi.
Meanwhile, the other commodity currencies such as the Canadian
and the New Zealand dollars retreated against their major
counterparts after the announcement of RBA's unexpected rate
cut.
The NZ dollar fell to a 6-day low of 1.6528 against the euro,
from an early high of 1.6348. The kiwi may test support near the
1.67 region.
Against the U.S. dollar and the yen, the kiwi edged down to
0.6974 from an early 2-week high of 0.7054. If the kiwi extends its
downtrend, it is likely to find support around the 0.68 region.
The kiwi dropped to more than a 3-week low of 73.86 against the
yen, from an early 4-day high of 74.90. On the downside, 73.00 is
seen as the next support level for the kiwi.
The Canadian dollar fell to 1.2529 against the U.S. dollar, from
an early 4-day high of 1.2502. If the loonie extends its downtrend,
it is likely to find support around the 1.27 area.
Against the yen and the euro, the loonie dropped to 84.53 and
1.4452 from early highs of 84.97 and 1.4421, respectively. The
loonie may test support near 82.00 against the yen and 1.46 against
the euro.
Looking ahead CIPS/Markit U.K. manufacturing PMI data for April
and Eurozone PPI for March are due to be released later in the
day.
At 10:30 am ET, Federal Reserve Bank of Cleveland President
Loretta Mester will participate in a panel discussion titled
"Unconventional wisdom: How will unusual monetary policy affect
market liquidity" at the Atlanta Federal Reserve's Annual Financial
Markets Conference in Amelia Island.
At 12:30 pm ET, Bank of Canada Governor Stephen Poloz is
expected to participate in a panel discussion at the Milken
Institute's Global Conference in Los Angeles.
The Japanese markets are closed in observance of the
Constitution Day holiday.
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