Posted on February 3, 2015 by the XM Investment Research Desk at 8:16 am GMT
A surprise cut in Australian interest rates led the aussie to fresh lows against the US dollar as well as weakness versus other majors. The RBA reduced rates to 2.25% from 2.50%, as it said the economy was growing below trend. In addition, even following its recent drop, the Reserve Bank still saw the Australian dollar as overvalued on a fundamental basis.
The move came as a surprise to the majority of analysts and this led to aggressive sales of the aussie down to 0.7650; the lowest since May of 2009. Analysts were expecting at least one more rate cut out of Australia to bring the Overnight Cash Rate (OCR) to 2%.
Economic data out of Australia were slightly on the bullish side for the local currency. Building approvals for December fell less-than-expected month-on-month, down 3.3% versus a contraction of 5% that was anticipated. The country’s trade deficit narrowed to 436 million Australian dollars in December from 1.01 billion the previous month.
In risk assets, there was little follow-through in Asia from the rally overnight on Wall Street. The euro held firm above the 1.13 level as somewhat weak data out of the US in the form of weaker-than-expected Manufacturing PMI combined with relatively more constructive statements out of the Greek government with respect to negotiating a deal with its creditors. The euro was trading at 1.1337.
The dollar was also under pressure against a resurgent Japanese yen, as dollar / yen briefly traded below the 117 mark before rebounding to trade around 117.25. Dollar / yen closed the New York session around 117.50.
Looking ahead, the economic calendar is looking somewhat subdued as no major announcements are expected either in the US, the UK or the Eurozone. UK construction PMI for January and December factory orders out of the United States could attract some attention. A couple of Fed speakers such as Bullard and Kocherlakota later during the US session could provide some cues for movement in the US dollar – particularly Bullard.