Aust dollar closes higher after RBA cuts rates
03 Feb 2009 5:42 PM
SYDNEY, Feb 3 AAP - The Australian dollar has closed higher after the Reserve Bank of Australia (RBA) announced another large cut to official interest rates.
At 1700 AEDT, the Australian dollar was trading at $US0.6358/62, up from Monday's close of $US0.6318/23.
During the day, the currency moved between $US0.6297 and $US0.6421.
The Australian dollar reached its intraday high shortly after the RBA announced it had cut the cash rate by 100 basis points to 3.25 per cent.
"The (RBA) board judged that a further sizable reduction in the cash rate was appropriate to give further support to demand," RBA governor Glenn Stevens said in a statement on Tuesday.
Mr Stevens said the decision "took into account" the federal government's second fiscal stimulus package, worth $42 billion, which was announced at 1230 AEDT.
"The combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad," Mr Stevens said in the statement.
The RBA rate cut was in line with the consensus forecast of market economists, but there had been increasing speculation before the decision that the central bank would be prepared to drop rates by a move aggressive 125 basis points.
"The initial reading from the statement was that the 100 basis points was somewhat disappointing to an interest rate market that had a slightly more aggressive rate cut priced in," RBC Capital Markets senior currency strategist Sue Trinh said.
"The Aussie enjoyed a very brief relief rally that the rate cut wasn't any greater."
The Australian dollar's move higher was not sustained as the local currency quickly returned to levels prior to the RBA's 1430 AEDT rate decision, but still finished the trading day higher.
Ms Trinh said the Australian dollar gave up its gains as risk aversion settled back into the market towards the end of the local session.
"It's been a broad-based US dollar strengthening heading into the Asian close," Ms Trinh said.
Ms Trinh said the she expected the RBA to cut the cash rate to 2.5 per cent despite a slightly more neutral statement from the central bank accompanying Tuesday's rate decision.
The Australian dollar was moving higher ahead of the RBA decision, in line with a stronger euro against the US dollar.
However, Ms Trinh said currency markets largely ignored the fiscal stimulus package announced by the federal government.
US data due during Tuesday night's (AEDT) offshore session included pending home sales for December, total vehicle sales for December and a private sector survey on consumer confidence.
CURRENCY TABLE: Currency snapshot at 1700 AEDT
CURRENCY SPOT PREVIOUS CLOSE
AUD/USD 0.6358-62 0.6318-23
AUD/JPY 56.88-92 56.66-70
AUD/EUR 0.4949-53 0.4962-69
AUD/NZD 1.2585-03 1.2547-65
AUD/GBP 0.4480-83 0.4388-95
EUR/USD 1.2845-47 1.2727-31
USD/JPY 89.44-46 89.68-71
EUR/JPY 114.89-93 114.14-18
(*Closes taken at 1700 AEDT Previous local session)
At 1600 AEDT, the Reserve Bank of Australia's trade weighted index was at 52.9, up from Monday's close of 52.4.
