The Australian dollar was lower late Wednesday after euro-zone finance ministers and International Monetary Fund officials failed to find a solution to Greece’s ongoing debt crisis. After nearly 12 hours of talks in Brussels, the closely-watched meeting ended without a deal, with ministers saying the technical details involved were so complex they needed to reconvene on Nov. 26 to reach a final agreement. IMF chief Christine Lagarde said some progress had been made, despite the breakup of the talks. “It’s progress, but we have to do a little bit more,” she said.
The weakness in the Australian dollar also reflected recent comments by senior central bank officials pointing to the likelihood of further interest rate cuts. Reserve Bank of Australia Gov. Glenn Stevens told a business audience late Tuesday that the idea of a further rate cut was discussed at a policy meeting on Nov. 6, though he added that the effects of interest rate cuts over the last year, which have amounted to 1.5 percentage points, are still flowing through to the economy.
Mr. Stevens said the outlook for economic growth was uncertain as a mining investment surge starts to fade. The RBA can’t be certain how fast other parts of the economy will strengthen, he added. Mr. Stevens also confirmed that the RBA’s recent policy of building foreign exchange reserves was a deliberate action by the central bank. The rise in reserves by more than A$1 billion since July has been termed passive intervention by currency strategists. “On so-called passive intervention, let’s just say that was customer business that we decided to keep on the balance sheet because the prices seemed attractive to do that,” Mr. Stevens said. By not converting foreign exchange holdings into Australian dollars–the RBA’s usual practice–the central bank has effectively removed a source of demand for the currency.
The Aussie dollar was trading at US$1.0352 at 0545 GMT, after hitting an intraday high of US$1.0393. That compared with US$1.0408 late Tuesday.
EasyForexNews Research Team