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    Yen strengthens, Aussie falls after RBA leaves policy steady

    The Aussie fell on Tuesday as the RBA decided to leave monetary policy unchanged and economists speculated that easing could lie ahead, while the safe-haven yen found support from alarming signs in China’s service sector.

    A report from China indicated that activity in the country’s services sector inched up to an 11-.month high last month, but a composite measure of activity slipped to a four-month low. That triggered concerns that the services sector may not be able to make up for a slowdown in the industrial economy that has dragged China’s growth to 25-year lows.
     
    The greenback slid 0.5% to 102.03 against the yen, after shortly falling to as low as 101.985, while the single currency dropped 0.8% to 113.51 against the yen. As there are no domestic factors to underpin the yen’s strength, it appears to be the risk-off sentiment from China’s data that lent support to the currency.
     
    The Australian dollar initially retreated from session lows, when the Reserve Bank of Australia announced its decision to leave monetary policy steady, but then it fell 0.31% to 0.7516, drifting away from Monday’s one –week high of 0.7545.

    The central bank left its cash rate unchanged at 1.75%, in a widely anticipated move, given political turmoil at home and abroad and a lack of data on domestic inflation.

    Analysts await the inflation data at the end of the month that will determine whether the RBA could announce a rate cut in August, that according to them it won’t be the last.

    Also, the Australian Bureau of Statistics reported that retail sales increased by 0.2% in May, below expectations for a 0.3% rise. Retail sales increased 0.1% a month earlier, whose figure was revised down from an initial estimation of 0.2%.

    Another report revealed that the country’s trade deficit widened to A$2.218 billion in May from an upwardly revised reading of A$1.785 billion in the previous month. Economists anticipated the trade deficit to narrow to A$1.500 billion.

    Furthermore, policy paralysis after no clear winner from the weekend election continued to weigh on the Australian dollar’s outlook, in addition to the Brexit implications.

    Brexit has intensified the urgency for some Asian central banks to ease monetary policy, as a lingering period of uncertainty may trigger a broader decline in trade and investment.

    The actual timing of the U.K.’s exit from the European Union is not yet determined and against this backdrop, market participants begin to speculate for further stimulus and U.K. corporate tax cuts to alleviate the impact of the move.
    The British pound fell 0.3% to 1.3247 against the dollar, remaining above last week’s 31-year low of 1.3122.

    The Kiwi lost 0.40% to 0.7198 against the dollar, below Monday’s one-and-a-half week high of 0.7240. Official statistics showed that the NZIER business confidence index advanced to 19 in the three months to May, from a reading of 2 in the first quarter.
     
    The U.S. dollar, which tracks the greenback’s performance against a group of six other currencies, was last up 0.13% to 95.72.
     

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