Aussie Slides After RBA Minutes as Euro Falls
Australia’s dollar dropped to a two-week low versus its U.S. counterpart as the nation’s central bank signaled it was likely to maintain record-low interest rates, damping demand for the currency.
The Aussie fell against 15 of its 16 major counterparts after the Reserve Bank predicted protracted spare capacity in labor markets in the minutes of its May meeting. The euro slid to a three-month low versus the yen before European Central Bank officials speak today in Frankfurt and Helsinki, amid speculation they will ease monetary policy next month. The Bank of Japan began a two-day meeting today. New Zealand’s dollar fell to a three-week low before its latest dairy auction.
“The picture is turning quite negative for the Australian dollar,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “The RBA assessment is fairly downbeat. The Aussie’s recovery since the beginning of the year could well be tested.”
Australia’s dollar fell 0.7 percent to 92.65 U.S. cents at 7:14 a.m. New York time, after declining to 92.58 cents, the lowest level since May 5.
The euro dropped 0.2 percent to 138.83 yen after falling to 138.55, the weakest level since Feb. 7. The 18-nation common currency slipped 0.1 percent to $1.3697. The dollar fell 0.1 percent to 101.36 yen after reaching 101.10 yesterday, the least since Feb. 5.
Inflation in Australia is contained and the economy is adjusting to fewer resource projects, the RBA said.
“The board noted that overall growth in coming quarters was likely to be below trend given expected slower growth in exports, the decline in mining investment and the planned fiscal consolidation,” according to the minutes of the central bank’s May 6 meeting, when it kept the cash rate unchanged at 2.5 percent. “The current accommodative stance of policy was likely to be appropriate for some time yet.”
The Australian dollar rose 3.5 percent this year, the second-best performer after the New Zealand dollar among 10 major currencies tracked by ForexSQ Correlation-Weighted Indexes. The euro fell 1.2 percent, while the dollar declined 0.9 percent.
ECB governing council member Luis Maria Linde is scheduled to speak today at the Frankfurt Finance Summit, while Erkki Liikanen speaks in Helsinki.
“We have seen that banks are accepting negative deposit rates, that they see it as an insurance premium for an especially safe deposit,” ECB Governing Council member Ewald Nowotny said yesterday in Vienna. “If this makes sense and is needed on a European level, it must still be thoroughly discussed.”
ECB President Mario Draghi said on May 8 that central bank officials are “comfortable” with acting at the June 5 policy meeting.
“ECB easing in June is becoming the consensus view,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. in New York. “There would be no buyers of euro. It’s more likely it will break lower into the next ECB meeting.”
The euro weakened as much as 0.4 percent against the pound to a 16-month low of 81.20 pence.
Sterling also rose against the dollar after a report showed U.K. consumer-price inflation accelerated for the first time in 10 months in April.
Consumer prices rose an annual 1.8 percent last month, compared with 1.6 percent in March, the Office for National Statistics said today in London, exceeding the 1.7 percent median estimate of analysts in a ForexSQ News survey. That’s the first increase since June.
The pound strengthened 0.1 percent to $1.6830.
The BOJ meets from today amid forecasts by 44 percent of economists in a ForexSQ News poll of additional stimulus by the end of its July gathering. No change to policy is predicted for tomorrow, with the central bank buying about 7 trillion yen of sovereign debt a month since April of last year.
Federal Reserve Bank of Philadelphia President Charles Plosser speaks in Washington and New York Fed President William Dudley speaks in New York today, a day before the release of minutes of the Federal Open Market Committee’s April 29-30 meeting, when the central bank pared asset purchases to $45 billion per month.
New Zealand’s dollar declined before a GlobalDairyTrade auction today. The whole-milk powder price fell for a sixth straight auction on May 6, GlobalDairyTrade results showed.
The kiwi fell 0.5 percent to 85.82 U.S. cents after declining to 85.74, the weakest level since April 30.
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