The Australian dollar hovered near a decade high against the struggling euro on Monday as uncertainty over whether Euro member Greece can repay its debts hurt the common currency. The euro was cowering at A$0.5328, having sunk from A$1.5750 over last week to as low as A$1.5263. The next key support levels are A$1.5225 and A$1.5186.
If these levels are breached, it could pave the way for the euro to fall below A$1.50. Investors are nervous about whether other European countries would step in to help Greece if it is unable to repay its debts. A poll showed a majority of Germans want Greece to be thrown out of the eurozone if necessary.
If that should happen, the US dollar should rise against most major currencies, RBS said, as investors seek refuge in safer assets at the expense of riskier ones such as the Australian dollar. "Risks of a default by Greece and that it may even at some point choose to leave the zone and opt for a large devaluation...will certainly place downward pressure on the euro," RBS said in a note. The Aussie held its ground against other major currencies, steady at $0.8877 and 80.05 yen. Implied money market rates show investors see a 40 percent chance of the RBA raising rates by 25 basis points to 4.0 percent on March 2, down from 50 percent late last week.
Expectations of less aggressive tightening helped Australian bond futures to rise, with three-year futures up 0.04 points at 95.12. The 10-year contract was up 0.045 points at 94.47. China had raised the level of reserves banks must hold by 50 basis points on Friday to 16.5 percent, the second reserve ratio hike for this year.
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