AUD/USD with daily gains after RBA Stevens’ testimony

Australian dollar traded higher against its US counterpart on Wednesday, as speculation appeared that the Reserve Bank of Australia (RBA) may not reduce its benchmark interest rate further after banks Governor Glenn Stevens stated that there were indications accommodative policy was providing support to spending in the country.

AUD/USD touched a session high at 0.8928 at 0:20 GMT, after which consolidation followed at 0.8914, gaining 0.16% for the day. Support was likely to be found at December 17th low and also the lowest point since August 5th, 0.8882, while resistance was to be met at December 17th high, 0.8958.

“Because inflation has been consistent with the target, the board has been quite comfortable in easing policy by a significant amount,” RBA Governor Glenn Stevens said in remarks to a parliamentary committee in Canberra today, cited by Bloomberg. “The board has maintained an open mind about whether we may need to lower interest rates further. At this point, however, there are few serious claims that the cost of borrowing per se is holding back growth.”

“My judgment would be that an exchange rate over a dollar or even in the 90s is unlikely to be a sustainable equilibrium for us over time,” he also said on Wednesday.

The central bank in Australia has reduced borrowing costs by 2.25% since October 2011 in order to facilitate the re-balancing of the economy, as investment boom in the sector of mining has faded.

The yield on Australian three-year bonds touched the lowest level since October 1st at 2.87% today, while the yield on nations 10-year government bonds was little changed at 4.23%, after reaching 4.29% yesterday.

Meanwhile, on Tuesday the Department of Labor in the United States reported that the consumer price index (CPI) in the country rose 1.2% in November, compared to a year ago, short of analysts’ estimates of a 1.3% increase. In October the CPI rose to 1.0%. Data showed that the CPI remained flat in November, compared to October’s 0.1% decline and also came short of analysts’ projections of an increase by 0.1%.

The index of consumer prices, which excludes food and energy costs, or core consumer price index, stood at 1.7% in November from a year ago, unchanged from October and in line with expectations. Core CPI rose 0.2% in November, after another 0.1% gain in October. Analysts’ forecasts pointed a 0.1% increase. The Federal Reserve considers core consumer prices as a better gauge of longer-term inflationary pressure, because they exclude volatile components such as food and energy. Federal Reserve’s inflation objective is a rate of 2%, which provides price stability.

Later in the day the FOMC is expected to announce its interest rate decision and the monthly pace of its monetary stimulus, after which Fed Chairman Ben Bernanke will attend a press conference.

Elsewhere, the Aussie was higher against the euro, with EUR/AUD cross down 0.13% on a daily basis to trade at 1.5458 at 8:05 GMT. AUD/NZD pair was gaining 0.31% to trade at 1.0796 at 8:07 GMT, after earlier falling to 1.0749, or the weakest level since October 2008. The Australian dollar has depreciated 1.5% during the past week and 5.5% during the past month, or the worst performance over both periods among the 10 developed-nation currencies, which are tracked by Bloomberg Correlation-Weighted Indexes.

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