The Australian dollar rose on Friday as investors shrugged off the central bank's move to sharply cut its 2009 growth forecast, and chose to bet instead it will slow its pace of aggressive interest rate cuts. The Aussie rose to $0.6541, from Thursday's $0.6434, helped on the margins by a slight improvement in investors' risk appetites that buoyed stock markets across Asia on Friday.
But Aussie bond futures tumbled on expectations of smaller rate cuts. Australia's central bank on Friday cut its forecast for 2009 gross domestic product growth to just 0.5 percent from 1.75 percent in November, and predicted rising unemployment and falling inflation as demand slumps. But analysts and traders said the statement was still less dire than some had expected as it held out the hope that previous hefty rate cuts, mounting fiscal spending and a weaker Aussie would combine to shield Australia from the worst of the fallout.
"Our sense of today's statement...is that having cut 400 basis points in five months, the Reserve Bank of Australia would like to pause or at least slowdown the pace of easing," said Paul Brennan, a Citigroup analyst. Investors seemed to agree with March interbank futures diving 0.185 points to 97.190, implying less chance of even a 50 basis point cut in the 3.25 percent cash rate. A week ago they were pricing in a real possibility of a full percentage point easing. Three-year bond futures fell 0.190 points to 96.650, its biggest drop in a month, while 10-year futures lost 0.080 points to 95.575 points.
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