The Australian and New Zealand dollars rose on Friday after the Reserve Bank of Australia (RBA) did not explicitly open the door to further cuts in rates, prompting markets to pare back the chance of a follow-up easing in March. The Australian dollar leapt around half a US cent to a peak of $0.7860, after the central bank released its quarterly outlook on the economy.
Traders said speculators had been counting on a clear easing bias and severe downward revisions to growth and inflation. Instead, the central bank gave no forward guidance on rates and trimmed its growth outlook by a slim quarter of a percent. Markets imply a one-in-five chance of a another rate cut in March, from one-in-three before the statement. They are, however, fully priced for a move by June.
"The central bank has plenty of time on its side to decide if a further rate cut is necessary given inflation is well contained," said Savanth Sebastian, an economist at CommSec. The Aussie trimmed some of its gains to $0.7823, but was still far above a six-year trough of $0.7627 touched this week. It is up 0.7 percent for the week, a remarkable performance given that the RBA surprised some by cutting interest rates on Tuesday for the first time in 18 months.
The Aussie, however, was not so lucky against the pound, which has gained 1.2 percent this week to reach 6-year highs. The next focus is on US nonfarm payrolls for January, due later in the session. Australian government bond futures eased from recent record peaks, with the three-year bond contract down 6 ticks at 98.080. The 10-year contract shed 5 ticks to 97.5800.
The New Zealand dollar had a quiet session as financial markets were shut for a public holiday. It edged up to $0.7401, having touched a four-year low of $0.7177 on Tuesday. It was on track for a weekly gain of 2 percent, its best performance since November. New Zealand government bonds were closed due to the public holiday.
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