THE Australian dollar has slipped amid renewed hopes of a US rate rise before Christmas. At 0800 AEDT on Tuesday, the local unit was trading at 76.11 US cents, down from 76.25 cents on Monday.
BK Asset Management managing director of foreign exchange strategy Kathy Lien said the greenback was boosted against all major currencies by positive manufacturing data for October and renewed hopes of a US interest rate rise in December.
She also said a number of US Federal Reserve policymakers, speaking overnight, were optimistic about interest rates.
All three of the commodity currencies traded lower against the US dollar today. The biggest loser was the Canadian dollar which dropped to a fresh seven-month low against the greenback, Ms Lien said in a note.
No data was released from Australia or New Zealand over the last 24 hours so the weakness of these currencies were due entirely to the strength of the US dollar. The only local risk event of note is the ANZ weekly consumer confidence survey due on Tuesday morning.
CURRENCY SNAPSHOT AT 0800 AEDT ON TUESDAY
One Australian dollar buys:
* 76.11 US cents, from 76.25 cents on Monday
* 79.28 Japanese yen, from 79.20 yen
* 69.95 euro cents, from 70.10 euro cents
* 62.22 British pence, from 62.47 British pence
* 106.70 New Zealand cents, from 106.38 NZ cents
(*Currency closes taken at 1700 AEDT previous local session)
RESERVE Bank Governor Glenn Stevens wants the Australian dollar to fall to about 75 US cents and says any interest rate cuts need to be delivered in a way that boosts confidence rather than highlight the economy’s woes.
Hes told Fairfax Media that the falling terms of trade, a key measure of export income that will see billions wiped from next weeks budget update, had been greater than expected and that was a key reason the currency should fall.
Mr Stevens said if he had to pick a level for the currency, probably 75 US cents was better than 85 US cents.
He told The Australian Financial Review that the ideal level for the dollar was something of a moving target, but it had come from an unsustainable level of well above parity.
The RBA governor said this years strategy of keeping rates steady at 2.5 per cent delivered a message of stability that was the best way to buttress household and business sentiment.
Asked if further rate cuts would harm sentiment, Mr Stevens said any additional stimulus would need to be linked to a confidence-enhancing narrative.
A positive narrative might be inflation is not any impediment to even lower rates if they would be helpful, Mr Stevens said.
And you would still expect, I think, that lower interest rates are stimulatory for the economy. But were certainly reaching levels where, for those who have interest rates as their income, the income effect on them is clearly quite something to be thought about.
On the health of the global economy, Mr Stevens said that even though Japan had seen renewed weakness and Europe was still struggling, China was still looking solid and the US economy was strengthening and that was not too bad an environment for Australia.