The Australian dollar edged sharply lower against its major rivals on Tuesday in Asia following the Reserve Bank of Australia’s decision to retain the benchmark interest rate at 4.5% for the fourth consecutive month.
The aussie plunged to a 1-week low against the Canadian and NZ dollars, 4-day low versus the greenback and the yen and moved off its recently hit multi-month high against the euro.
Though the decision was widely expected, the overall tone of the Central Bank statement failed to attract investors to the resource-linked domestic currency, which in turn lead to large sell-off.
The central bank broadly retained its economic assessment, saying the Australian economy had been growing at around trend pace, boosted by commodity exports and strong investment.
With regards to inflation, the bank said the headline CPI will likely remain just above the 3% target ceiling through mid-2011 due to the impact of tobacco tax changes.
The Australian dollar slumped to a 1-week low of 1.2616 against the New Zealand dollar and 0.9464 against the Canadian dollar by 1:30 am ET and both the pairs moved in a holding pattern thereafter. On the downside, the next likely support levels for the aussie are seen at 1.26 against the kiwi and 0.9340 versus the loonie.
The aussie fell to a 4-day low of 0.9120 against the US dollar and 76.70 against the Japanese yen at this time and the next likely support levels are seen at 0.91 and 76.30, respectively. The Australian currency is currently quoted at 76.87 against the yen and 0.9135 versus the greenback.
Today, the Bank of Japan decided to retain the overnight call rate at 0.1%, as widely expected. The bank maintained its economic assessment, saying there were further signs of a “moderate” recovery.
Meanwhile, Japan’s leading indicator declined in July after rising in June, preliminary data from the Cabinet Office showed today. The corresponding index fell to 98.2 from 99 in June. The reading came in line with economists’ expectations.
However, the coincident index rose to 101.8 from 101.3 in June. The coincident index reading also came in line with consensus forecast.
The Australian dollar that rose to a multi-month high of 1.3961 against the euro earlier in the session started reversing direction in late trading and reached as low as 1.4035 before moving sideways around 1:30 am ET. The euro-aussie pair is presently quoted at 1.4020.
Earlier, the euro lost ground after a report from the Association of German Banks estimated that Germany’s ten biggest lenders, including Deutsche Bank AG and Commerzbank AG, will need an additional EUR 105 billion in fresh capital to meet estimated new Tier 1 capital ratios.
Investors are also cautious as the European Union members meet today to discuss the penalties that will be imposed on member nations that fail to implement to the European Union budget rules.
Looking ahead, Germany’s Federal Ministry of Economics and Technology is expected to release factory orders data for July at 6:00 am ET.
There are no major economic data due out from the North American session today.