July 16, 2013 10:31 am

Aussie climbs as rate cut expectations fade

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Central bank action and comment drove the biggest moves on currency markets on Tuesday, lifting both the Australian dollar and the Indian rupee.

The Aussie was the main mover for a second day as investors pared back interest rate cut expectations. The currency climbed 1.5 per cent to $0.9228 against the US dollar and was 1 per cent higher at Y91.73 against Japan’s yen.

After getting a boost in the previous session from stronger than expected Chinese growth data, Tuesday’s gains came following the publication of the minutes from the Reserve Bank of Australia’s July policy meeting, at which the central bank kept rates on hold.

The RBA said its inflation outlook was slightly higher because of the near 10 per cent fall in the Australian dollar this year. It added there was still room to provide further stimulus if necessary, but investors took the message that the central bank would rather wait for further developments from measures already in place than cut rates at the August meeting.

“The doubt that’s now in the market’s mind, combined with the fact that the currency has been heavily oversold, has created the conditions for a bounce in the Aussie – which we expect to continue for now,” said Stephen Barrow at Standard Bank.

India’s rupee climbed 0.9 per cent to Rs59.25 against the dollar after the Reserve Bank of India surprised the market by raising both its Marginal Standing Facility rate and bank rate by 2 full percentage points to 10.25 per cent in its latest effort to ease the sell-off in the currency.

The central bank also capped its liquidity facility and announced a sale of government securities, after the rupee last week fell to a record low of Rs61.21.

Sterling recovered early losses after UK inflation rose by less than expected in June.

Consumer prices rose by an annual 2.9 per cent in June, up from 2.7 per cent in May – less than the 3 per cent rise expected by a majority of analysts.

The pound’s initial reaction – falling 0.3 per cent versus the dollar – suggested investors were positioning for the possibility of further monetary stimulus from the Bank of England.

The UK currency rebounded, however, to stand 0.1 per cent higher at $1.5114.

The euro rose 0.5 per cent to £0.8690 against the pound, and was up 0.6 per cent to $1.3137 against the dollar.

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