Australian Dollar Declines to Two-Month Low

AUSTRALIA-ECONOMY-RATE-BANK-FOREXA bike courier rides past the entrance to the Reserve Bank of Australia (RBA) in Sydney's central business district on April 2, 2013. AFP PHOTO / Greg WOOD (Photo credit should read GREG WOOD/AFP/Getty Images)

The Australian dollar declined against all its 16 major counterparts on Friday after the Reserve Bank forecast core inflation is unlikely to reach its target this year.

The central bank in its quarterly statement said underlying inflation is expected to be 1 to 2 percent in 2016, down from the 2 to 3 percent projected in February. The currency has so far plunged 2.6 percent this week, the most since Jan.8.

“Inflation running at the bottom of the band as a base case is rather uncomfortable,” said Sean Callow, a senior foreign-exchange strategist at Westpac Banking Corp. in Sydney. “Aussie-dollar trading ranges for the rest of the year just ratcheted lower.”

Analysts have previously forecast 1.50 percent cash rate to keep the currency down but all of a sudden the market is thinking 1.50 percent might not be RBA cash rate low, if the central bank is to achieve its 2 percent inflation target. Governor Glenn Stevens on Tuesday said recent unexpected low data together with subdued growth in labour costs has put very low cost pressures on inflation.

While Australian shares retraced some declines after the central bank statement, Asian shares lost ground ahead of U.S. non-farm payroll numbers due later in the day.

“Markets will be slightly more nervous around the Friday release of the non-farm payrolls number (expected at 200,000) after ADP employment growth came in at 154,000, well below the market consensus of 195,000,” said Angus Nicholson, market analyst at IG, in a Thursday note.

The local currency slid 0.8 percent to 73.81 U.S. cents as of 2:12 p.m. Friday Sydney.

 

 

 

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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