Australian dollar 10-year high

The Australian dollar crept up to new decade highs on the euro on Tuesday as the country's central bank said further increase in interest rates were likely this year, a marked contrast to most other developed nations. Minutes released for the Reserve Bank of Australia's (RBA) February policy meeting showed its outlook for moderating inflation was condition on gradual hikes, though that did not mean it would move at every meeting.
Indeed, it surprised at the February meeting by not hiking as the market expected, citing China's recent policy tightening and Greece's debt crisis as reasons for caution. That led investors to pare back the probability of a move in March, while still pricing in 100 basis points of tightening for the entire year.
"Until there is further insight about what the RBA will do in March, rate expectations are being wound back," said Tony Morriss, a rate strategist at ANZ. March interbank futures added 0.025 points to 96.185, while implied money market rates show a 29 percent chance of a 25-basis-point rate rise is priced for March 2, down from 50 percent late last week.
Despite that, the Aussie managed to hold its ground. The beleagured euro fell to a new decade low of A$1.5252, from Monday's A$1.5319. It rose on the US dollar to $0.8937, from Monday's $0.8878. Traders said Asian central banks were buyers below $0.8900. Stop-losses were also said to be lined up around $0.8925-30, implying the Aussie may be set for a few more waves of buying. The RBA had stunned markets earlier this month by leaving rates unchanged at 3.75 percent, throwing into a tailspin resolutely confident bets of rates rising to 4.0 percent.
But some analysts said between the disparate outlooks at home and aboard which are pulling the RBA in opposite directions, the buoyant story at home should win over time. Many economic forecasters, including those at the RBA, believe Australia is set for a golden period of growth over the next few years, helped by surging Chinese demand for commodities.
The latest labour report, which showed a surprisingly big drop in unemployment, also backed arguments the Australian economy is set for solid growth. "There is not enough for the RBA to stay on hold for very long," said Sean Callow, a strategist at Westpac.