Tuesday, the Australian dollar that plunged against its major counterparts after the Reserve Bank of Australia unexpectedly trimmed interest rates, bounced back shortly. The Aussie thus jumped to a 4-day high against the euro, the kiwi and the Canadian dollar.
Meanwhile, the Aussie recovered from a 4-day low against the yen and a 5-day low against the US currency.
Australia's central bank slashed its benchmark interest rate to a 49-year low as policy makers signaled the economy faces its first recession since 1991. The Reserve Bank of Australia decided to lower the cash rate by 25 basis points to 3%, effective from April 8. Economists had expected the central bank to hold key interest rate at 3.25%.
The Board judged that there was scope for a further modest adjustment to the cash rate. The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead, the central bank stated.
The RBA said there had already been a major change in both monetary and fiscal policy, following a series of rate cuts since September and the announcement of federal government fiscal stimulus initiatives.
To spur domestic demand and avoid a slump in the housing market, the central bank began cutting interest rates in September 2008, lowering the benchmark rate from 7.25 percent to 3.25 percent by February 2009.
The RBA Governor Glenn Stevens said the Australian economy was contracting, although by less than the economies of the nation's trading partners. Capacity Utilization has fallen from its peak, and will decline further over the rest of the year, he added.
The RBA expects further weakness in the jobs market, which was likely to keep a lid on pay rises and help push down inflation. Rio Tinto Group today said it will fire 100 workers at its Weipa mine in Queensland, adding to a surge in job cuts that is driving up unemployment.
The RBA board also noted the contraction in the global economy continued in the first few months of this year and there had been downward revisions to the growth outlook. Since the central bank's March meeting, when it kept rates unchanged, reports have shown the economy unexpectedly shrank 0.5 percent in the fourth quarter, the first contraction since 2000, and retail sales slumped 2 percent, the biggest drop in almost nine years.
Australia's economy will contract this year for the first time in more than two decades as a deepening global recession saps demand for exports of natural resources, Deputy Governor Ric Battellino said last week, revising a previous forecast for 0.5 percent growth.
Australia has scope to cut borrowing costs further in coming months if the economy continues to weaken. By contrast, the U.S. Federal Reserve's benchmark rate is close to zero, the Bank of England's is the lowest since its creation in 1694 and the European Central Bank trimmed its main rate by a quarter point to 1.25 percent on April 2. Japan today kept its rate at 0.1 percent.
Inflation over the medium term is likely to be lower than it has been over the last two years, Stevens said.
In addition, Stevens said conditions in global financial markets had continued to improve, helped by progress towards a resolution of banking system difficulties in the United States and other major countries.
The Aussie gained after hitting multi-day lows of 0.7052 against the U.S. currency and 70.86 against the yen at 12:30 am ET Tuesday. At present, the aussie is worth 0.7140 against the greenback and 71.82 against the yen. If the Aussie climbs further, it may test near term resistance around 0.720 against the greenback and 72.9 against the yen.
A fall in Asian stocks pushed the Aussie to a 4-day low against the dollar and the yen in early trading today.
The Australian stock market was trading lower today, snapping three straight sessions of gains, following a modest loss on Wall Street overnight as well as falling commodity prices.
Today, the Bank of Japan retained its key interest rate and decided to expand the range of eligible collateral for its provision of credit to facilitate money market operations.
The Policy Board of the central bank unanimously decided to hold the uncollateralized overnight call rate at 0.1%. The decision came in line with economists' expectations.
The BoJ's decision to expand the range of eligible collateral was made with an intention to ensure financial market stability. The central bank said it will accept loans on deeds to municipal governments as eligible collateral.
The Aussie, which closed yesterday's trading at 0.8837 against the Canadian dollar strengthened to a 4-day high of 0.8872 during early deals on Tuesday. The next upside target level for the aussie-loonie pair is seen at 0.894.
The aussie-loonie pair surged up to a 7-month high of 0.8942 on April 02 after a report showed that Australia's trade surplus increased more-than-expected in February. Although the Aussie eased thereafter, it rebounded again after hitting a 2-day low of 0.8745 on April 03 and extended its uptrend this week.
During early deals on Tuesday, the Aussie climbed to a 4-day high of 1.8739 against the euro. On the upside, 1.866 is seen as the next target level for the Aussie. At yesterday's close, the euro-aussie pair was quoted at 1.8806.
Gloomy economic reports from Europe released yesterday led to the weakening of the euro.
The Eurostat said retail sales in the 16-nation bloc slipped by a record 4% in February on a yearly basis. Retail sales decreased by a revised 1.7% in January and the consensus forecast was for a 2.5% decline in February. Retail sales fell 0.6% in February from the previous month. Economists were expecting retail sales to drop just 0.4% in February after rising 0.1% in January.
Euro zone producer prices showed an annual decline of 1.8% in February versus January's 0.7% drop. This was the largest fall since April 1999. For the annual variation, economists were looking for a 1.5% fall.
The Aussie jumped to a 4-day high of 1.2325 against the NZ dollar during early deals on Tuesday. This may be compared to Monday's New York session close of 1.2139. If the aussie-kiwi pair moves up further, it may find resistance around the 1.241 level.
The kiwi tumbled today after a report by the New Zealand Institute of Economic Research (NZIER) said that the New Zealand's economic recession probably worsened in the first three months of 2009.
The institute's Quarterly Survey of Business Opinion showed a seasonally adjusted net 47 percent of firms reporting decreased business activity. The figure was worse than the 44 percent negative reading recorded for the preceding quarter, and was the lowest since at least 1970.
The aussie-kiwi pair has appreciated more than 2% since reaching a multi-month low of 1.2044 yesterday.
Investors are now likely to focus on the European session, in which the Italian February hourly wages and the Euro-Zone final fourth quarter GDP report are slated for release.
Across the Atlantic, the U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 pm ET. Consumer credit for February is likely to show a decline of $1.5 billion.
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