The Australian dollar has stunned foreign exchange markets by hitting a new five-and-a-half year low amid growing expectations of a local interest rate cut.
At 7am AEDT on Friday, the Australian dollar was trading at 77.55 US cents, down from 78.75 cents on Thursday.
On Friday morning it fell as low as 77.20 US cents – the currency’s lowest level since July 2009.
There is a growing expectation that if the Reserve Bank of Australia does not cut the cash rate next week, it will at least indicate it is open to a reduction some time this year.
The prospect of an RBA rate rise has softened after the European Central Bank launched an economic stimulus plan, and interest rates were cut in Canada and Singapore.
Bank of New Zealand’s currency strategist, Raiko Shareef, said the Australian dollar was now one of the most underperforming currencies on the market.
“The Australian dollar’s fall over the past 24 hours has been nothing short of stunning,” he said. “It has shed the bounce following Wednesday’s better-than-expected inflation report, which took it above 80 [cents].
“The weight of expectation around next week’s RBA meeting continues to mount, such that a nasty snapback beckons should the RBA fail to adjust its language toward an easing bias.”
The RBA holds its first board meeting of the year on Tuesday.
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