News Column

Australian Dollar Slides After RBA Governor Stevens Warning

July 2, 2014



CANBERA (Alliance News) - The Australian dollar weakened against the other major currencies in the Asian session on Thursday following cautious comments by Reserve Bank of Australia Governor Glenn Stevens on the currency and house prices.

In an Australasian Meeting of the International Econometric Society in Hobart, the RBA governor warned investors against believing that house prices will always rise, and that the Australian dollar is currently way too stronger.

Stevens also said that low interest had their intended impact on the economy and suggested that RBA retain the scope to cut again if it needed to.

"We still have 'ammunition' on interest rates - we have not got close to the zero lower bound that has afflicted some other countries," Stevens said.

Weaker-than-expected Australia retail sales for May also weakened the aussie.

Data released by the Australian Bureau of Statistics showed that Australia's retail sales were down a seasonally adjusted 0.5% on month in May, coming in at AUD22.990 billion. That missed forecasts for a flat reading following the downwardly revised 0.1% decline in April.

The Australian Industry Group said that Australia's services sector continued to contract in June, showing an index score of 47.6. That's down from 49.9 in May, and it represents the fourth straight month of decline.

The Australian dollar fell to a 3-1/2-month low of 1.0000 against the Canadian dollar and nearly a 2-month low of 1.0693 against the NZ dollar, from early highs of 1.0073 and 1.0795 respectively. At yesterday's close, the aussie was trading at 1.0066 against the loonie and 1.0756 against the kiwi. The next possible downside target of the aussie is seen at 0.98 against the loonie and 1.06 against the kiwi.

Moving away from early highs of 1.4458 against the euro and 0.9442 against the US dollar, the aussie slipped to nearly a 4-week low of 1.4563 and a 9-day low of 0.9370, respectively. If the aussie continues its downtrend, it is likely to find support around 1.46 against the euro and 0.92 against the greenback.

The aussie dropped to a 2-day low of 95.47 against the yen, from an early high of 96.11. The pair was quoted at 96.06 at yesterday's close. The aussie may find support at the 94.82 level.

A survey by Markit Economics showed that Japan Services PMI edged down to 49.0 in June from 49.3 in May, signaling contraction for the third consecutive month. The decrease in service sector output was driven by an recent increase in sales tax.

Looking ahead, in the European session, PMI reports for June from major European economies and Eurozone retail sales for May are due to be released.

At 7:45 am ET, the European Central Bank will announce its interest rate decision. Economists expect the bank to retain interest rates unchanged at 0.15%. At 8:30 am ET, ECB President Mario Draghi will address the customary press conference following interest rate announcement.

In the New York session, US jobs data, trade data and ISM non-manufacturing PMI - all for June and weekly jobless claims for the week ended June 28, as well as Canadian trade data for May are set to be released.



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Source: Alliance News


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