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Aussie dollar races toward 2014 peak as RBA sticks to script

Aussie dollar races toward 2014 peak as RBA sticks to script

* Aussie dollar nears $0.9461 peak for year
       * RBA less dovish than some had wagered
       * Kiwi keeps pace with Aussie dollar

By Ian Chua and Naomi Tajitsu

The Australian dollar jumped to its highest in nearly three months on Tuesday and was threatening to break above its 2014 peak after the country’s central bank sounded less dovish than some had expected.

The Aussie raced to a high of $0.9458 , from around $0.9417 after the Reserve Bank of Australia (RBA) left interest rates unchanged at 2.5 percent and made no fresh attempt to talk down the currency.

The RBA simply reiterated that the local dollar was high by historical standards. It also said interest rates were low enough to provide support in an economy facing a cooling down in mining investment. [ID:nL4N0PB13T]

Markets had braced for a more dovish tone from the RBA, particularly after minutes of its June meeting suggested it was less confident about the outlook for the economy.

“So we’ve seen the Aussie dollar spike higher on short covering. The surprise for the market was that there was a lack of dovishness in the statement,” said Prashant Newnaha, strategist at TDSecurities in Singapore.

The rally has brought the Aussie to within a hair’s breadth of its 2014 peak of $0.9461, a level likely to provide initial resistance. A break there would take it to highs not seen since November 2013.

The Aussie also firmed against the euro and yen but was steady on its New Zealand peer.

The New Zealand dollar climbed 0.2 percent to $0.8770 , but stayed below a near three-year high of $0.8795 hit late last week.

The kiwi appeared to be taking a breather after last month’s 3 percent rally against the greenback. The consolidation saw it pull back from a post-float high on a trade-weighted basis <=NZD>.

Analysts, however, suspect its rally could resume later this week should readings of U.S. manufacturing and employment surprise on the downside and suggest the Federal Reserve might hold off from raising interest rates for longer.

This would contrast with ongoing rate rises in New Zealand, which have helped sustain carry trades in the currency. The Reserve Bank of New Zealand is expected to lift rates to 3.5 percent this month.

“In the short term the kiwi needs reasons to go down rather than up…With the proximity of the post-float high, there’s every reason to suggest that we could go up and meet it,” ANZ currency strategist Sam Tuck said.

Offers seen above $0.8800 should provide near-term resistance, while support lay at $0.8732, a level based on a trendline drawn from a low of $0.8401 hit in early June.

New Zealand government bonds slipped, pushing yields 2.5 basis points higher across the curve.

Australian bond futures softened in reaction to the RBA’s statement. The three-year contract dipped 3 ticks to 97.280. The 10-year contract slipped 2.5 ticks to 96.425 but was still not far from a one-year high of 96.470.

Source: Reuters

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