News Column

Australian Dollar Recovers Modestly After Stevens Comments

September 2, 2014

CANBERA (Alliance News) - The Australian dollar recovered slightly from early lows against the other major currencies in the Asian session on Wednesday after Reserve Bank of Australian Governor Glenn Stevens' speech at the Committee for Economic Development of Australia (CEDA) function in Adelaide.

Stevens said that further rate cuts were unlikely given the risk it poses to high house prices. Policy must avoid build up of financial sector risk, he added.

Steven noted that slowly building formation for better non-mining economy and it is more prudent to try to avoid boom-bust cycle.

The currency fell around 9:50 pm ET on Tuesday despite the release of a report showing that China's service sector activity improved in August after stagnating in the previous month. Earlier the currency had spiked upward around 9:30 pm ET in reaction to Australia's second quarter GDP report.

Data from the Australian Bureau of Statistics showed that the GDP beat forecasts for an increase of 0.4% following the 1.1% gain in the previous three months. On a yearly basis, GDP climbed 3.1% - also topping expectations for 3.0% following the 3.5% jump in the first quarter.

In the New York session overnight, the Australian dollar fell against the other major currencies and held steady thereafter.

On Tuesday, policymakers of Reserve Bank of Australia decided to maintain its record low interest rate once again as they continue to assess that the most prudent course is a period of stability in interest rates.The monetary policy board retained the cash rate at 2.50%. The rate has been at the current level since August 2013. The central bank expects economic growth to be below trend in the year ahead.

The Australian dollar has recovered slightly after late Tuesday session's volatility and is currently at 0.9286 against the dollar, from an early near 2-week low of 0.9262. This may be compared to an early high of 0.9302. At yesterday's close, the aussie was trading at 0.9273 against the greenback. If the aussie extends its uptrend, it is likely to find resistance around the 0.93 area.

Against the yen, the aussie recovered to 97.67 from an early low of 97.45. This may be compared to an early 16-month high of 97.81. The aussie is likely to find resistance around the 97.82 area.

Data from Markit Economics showed that the services sector in Japan contracted in August with a purchasing managers' index score of 49.9. That was down from 50.4 in July, and it slipped below the boom-or-bust score of 50 that separates expansion from contraction.

Moving away from an early 8-day low of 1.4171 against the euro, the aussie edged to 1.4136. This may be compared to an early high of 1.4112. At yesterday's close, the aussie was trading at 1.4156 against the euro. On the upside, 1.40 is seen as next resistance level for the aussie.

Against the Canadian dollar, the aussie edged up to 1.0152 from an early low of 1.0126. This may be compared to an early 6-day high of 1.0164. Continuation of bullish trend may lead the aussie to a resistance around the 1.017 mark.

Looking ahead, PMI reports from major European economies for August and Eurozone retail sales data for July are due to be released in the European session,. In the New York session, US factory orders data for July and Federal Reserve's Beige Book Report are scheduled to be released .

The Bank of Canada will announce its interest rate decision at 10:00 am ET. Economists expect the bank to retain interest rates unchanged at 1.00%.

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Source: Alliance News

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