The Australian Dollar headed for a two-month high against the US Dollar during local trade as investors further pared the odds of the Reserve Bank of Australia cutting rates. With confidence in the Euro shaky in light of recent developments, the ‘Aussie’ was also able to hold gains made against its European rival, trading close to the four-month high achieved yesterday.
The Australian Dollar exchange rate was trading in the region of 1.0477 against the US Dollar as of 10:00 am GMT
Although risk aversion edged back into the market after the Cyprus situation took another turn, the ‘Aussie’ was boosted by the falling probability of the RBA slashing Australia’s 3 per cent benchmark rate within the next few months.
As Foreign Exchange Manager Matt Cramer comments: ‘Markets aren’t seeing any easing from the RBA next month so that is a factor supporting the currency. There’s been consistent buying of the Aussie and Steven’s speech had very little implications for the currency.’
In the speech Cramer refers to, RBA Governor Glenn Stevens asserted that the bailout deal Cyprus eventually secured was an improvement on the one originally proposed. He also added that European authorities will probably maintain a ‘case specific’ approach in their tackling of further financial crises.
Steven’s remarks were slightly contrary to those made earlier by Dutch Finance Minister Jeroen Dijsselbloem.
As head of the Eurozone’s finance ministers Dijsselbloem’s opinions carry real weight, and after speaking on a Dutch television programme yesterday the Euro plummeted in response to his words.
When asked of the action taken in the Cyprus situation Dijsselbloem said: ‘We are looking for a way to place risks where they are taken. Banks should strengthen their balances – they have to ensure they can be unwound when they get in trouble. Next, it should be possible to make shareholders and bond holders contribute to a rescue. That’s how we move along. And then eventually you may get to a government contribution. That order was reversed in the last years.’
Conversely, RBA Governor Glenn Stevens made no reference to monetary policy, going so far as to dodge a direct question on the issue.
With Australian economic news thin on the ground in the days ahead movement in the ‘Aussie’ is likely to occur in response to global economic developments.
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