AUD Pares Loss Post Cautious RBA Cut, Dollar Rises
Australia’s dollar pared an intraday decline after the nation’s central bank cut interest rates but signaled caution over further reductions. A gauge of the dollar edged higher after Federal Reserve Governor Christopher Waller said recent economic data support keeping interest rates on hold.
The Aussie dollar fell 0.1% to 0.6350 after the Reserve Bank cut the key rate by 25 basis points to 4.1%.
An intraday rally to 0.6368 post the cut was sold into by fast money funds, according to an Asia-based FX trader.
“If monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range,” the rate-setting board said. “In removing a little of the policy restrictiveness in its decision today, the Board acknowledges that progress has been made but is cautious about the outlook”.
“Only true believers would be hoping that the first cut of what could be a protracted easing cycle will spark a sustained A$ rally,” said Sean Callow, senior FX analyst at InTouch Capital markets.
The RBA’s tone indicates it is not in a rush to cut again, but markets weren’t pricing that anyway. Another cut in May remains a solid prospect.
There may be enough lingering short positioning to help the Aussie make a run at 0.6400/25 multi-day, but if so, it will probably be driven by further USD decline, rather than the RBA’s wary tone.
Treasury yields rose across the curve on return from holiday long weekend. Yields on 10-year Treasuries rose 3.5bps to 4.51%.
Bloomberg Dollar Spot Index rose 0.2%, arresting a three-day slide that had been gradually losing pace. Waller characterized the economy as solid, with a labor market that is in a “sweet spot.” He cautioned against allowing uncertainty to delay the Fed’s response to economic data, which could lead to “policy paralysis”.
USD/JPY climbs 0.4% to 152.09.
“The US consumer spending outlook remains encouraging supported by positive real wage growth, healthy labor market and strong household balance sheet,” Elias Haddad, senior markets strategist at Brown Brothers Harriman & Co., wrote in a note.
“USD may not see any relief until Friday, when global February PMI readings should underscore the divergence theme,” Haddad added.
Euro and pound both lost about 0.2% to hit 1.0462 and 1.2600, respectively.
Source : Bloomberg
