Aus Dollar Exchange Rates Surge But is Too Early to Say the RBA Won't Loosen Policy?
- Written by: Gary Howes
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The Australian dollar exchange rate complex is racing ahead on Tuesday morning with fresh confirmation that the Australian economy may not need extra assistance from the country's central bank.
Update 1: Bank of America warn that the RBA will likely start trying to talk the Aus dollar lower following the recent return to strength.
Update 2: This just in from Lloyds Bank: "While the RBA has signalled that monetary policy is on hold for now, it is premature to conclude that the next move in interest rates is up and potentially before year end. The economy continues to face a number of headwinds that will likely require very loose monetary policy for some considerable time. Moreover, any significant rebound in the AUD will likely see the RBA reassert its easing bias. As a result, we expect the AUD/USD to fall to 0.85 by end 2014."
In Australia, business confidence improved in January according to NAB reading.
In addition, house prices increased at the pace of 9.3% q/q during the fourth quarter, faster than 8.6% expected (& 7.6% last).
As a result:
- The pound sterling to Austrlaian dollar exchange rate is 0.9 pct lower at 1.8169.
- The euro to Australian dollar exchange rate is 0.76 pct lower at 1.5136.
- The Australian dollar to US dollar exchange rate is 0.96 pct higher at 0.9036.
BE AWARE: All AUD quotes are taken from the wholesale inter-bank markets. Your bank will affix a spread to the rate at their discretion when passing on a retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here.
In the wake of today's good data, "AUD-USD finally cleared resistance at 0.9000. We still see some option offers at about 0.9000, yet the bets are biased to positive for days ahead. The sentiment is strongly bullish. AUDNZD recovered from yesterday low of 1.0782 to 1.0856. We continue seeing buying interest at the 50-dma (currently at 1.0801)," says Ipek Ozkardeskaya at Swissquote Research.
The pound sterling to Aus dollar exchange rate is meanwhile threatening a breach of the support region located around 1.8180. It's worth noting that in mid-January this level held ahead of a decent recovery back towards 1.9.
But what is different this time? The Reserve Bank of Australia has indicated that it is firmly in neutral gear with regards to interest rates and is not currently considering cutting as markets had previously suspected.
Business conditions improve in Australia
Today's data out of the Australian economy will further reinforce the 'no change' policy currently adopted at the RBA.
"After a sharp rise in December, business conditions nudged higher again in January, cementing the solid upward trend. Low interest rates and the lower AUD look to be supporting businesses, with conditions in the manufacturing, construction and retail sectors continuing to improve. Conditions in all other industries declined, although this followed strong gains in the previous month," says Felicity Emmett at ANZ Research.
The NAB measure of business confidence also rose in January, and remains well above the levels of the past few years.
Putting aside the post-election spike in confidence in September last year, confidence is now at its highest levels since early 2011.
Reserve Bank of Australia on hold
ANZ Research say the ongoing improvement in measures of business conditions and confidence confirms their view that the RBA is on hold for the time being.
"The economy is clearly responding to lower interest rates and the lower exchange rate, as the pickup in housing market activity and retail sales suggests, however it remains unclear how the decline in resources investment will play out and to what extent non-mining investment spending improves this year," says Emmett.
ANZ continue to expect the RBA to keep its policy settings unchanged for an extended period and don’t expect an increase in the cash rate until Q1 2015.
