The Australian dollar inched slightly higher in Asia trade Tuesday, helped in part by minutes from the latest meeting of Australia’s central bank board.
At its Dec. 6 policy meeting, when the Reserve Bank of Australia cut interest rates for the second straight month, the bank said that the relative strength of the local economy argued against such a cut. Further cuts in Australian interest rates in 2012 look set to be decided mostly by the crisis in Europe, with the bank seemingly positive on the outlook for Australia’s economy.
“The RBA minutes from December were not as dovish as some expected and suggested that a rate cut was not a given at the time,” said Sue Trinh, a foreign exchange strategist with RBC in Hong Kong.
Further helping the Australian dollar was a subsiding in the initial sell-off in Asian currencies on Monday over North Korea’s succession plans following the death of that country’s leader.
At 0530 GMT, the Australian dollar was trading at US$0.9940, up from US$0.9916 late Monday. It traded as low as US$0.9896 before the RBA minutes. Against the Japanese yen, the Australian dollar changed hands at Y77.51, up from Y77.29.
Looking to 2012, at least one Australian bank expects a weak start for the local unit. National Australia Bank, in a report released on Tuesday, said it expects the Australian dollar to be stuck between US$0.9000 and US$1.0500 next year with certain weakness early in the year.
“Our strongest view is that (Australian dollar) has already peaked at US$1.10 in August,” said NAB, adding “our forecast for AUD/USD is parity for (the second half of) 2012 but we now expect a decline to around US$0.9600 over the next quarter as global growth slows and the RBA cuts rates again.”
Still, in the worst-case scenario of a debt default, banking crisis and deep euro-zone recession that triggers a global recession and a plunge in commodity prices, NAB only sees the Australian dollar falling to around the mid US$0.8000 level, as opposed to the US$0.6000 level seen in late 2008 following the collapse of Lehman Brothers.
While the currency gained, bonds slid, particularly on the short end of the curve. Even so, fixed income traders continued to price in more than five rate cuts from the RBA in the coming 12 months.
EasyForexNews Research Team