Bloomberg News

Aussie at 1-Year Low as Central Bank Signals Rate Cut Possible

October 04, 2011

Oct. 4 (Bloomberg) -- The Australian dollar dropped to its lowest level in a year against the U.S. currency as a statement by the Reserve Bank of Australia suggested an easing of inflation pressures may pave the way for an interest-rate cut.

The Aussie slid for a third day against the yen as traders priced in an 82 percent chance the central bank will cut interest rates by one-half percentage point to 4.25 percent by November. New Zealand’s currency also fell against the U.S. dollar as global stocks dropped, damping demand for assets linked to growth.

“The RBA is opening the door to a rate cut and that should put some downward pressure on the Australian dollar,” said Richard Grace, the Sydney-based chief foreign-exchange strategist and head of international economics at Commonwealth Bank of Australia. “With equity markets continuing to remain very soft, I’d suggest that the Aussie is at risk of falling below 90 cents.”

Australia’s dollar sank as low as 93.88 U.S. cents, the least since September 2010, before trading at 94.41 cents as of 11:19 p.m. in New York from 95.27 yesterday. It fell to 72.56 yen from 73.01 yen after reaching 72.06, the lowest since May 2010. New Zealand’s dollar fell 0.2 percent to 75.13 U.S. cents after earlier dropping to as low as 74.70 cents, the weakest since March 24. It gained to 57.74 yen from 57.69 yen.

The MSCI Asia Pacific index of shares slid 1.5 percent and the Standard & Poor’s 500 Index dropped 0.5 percent.

“Taking into account all the recent information, the path for inflation may now be more consistent with the 2-3 percent target in 2012 and 2013,” RBA Governor Glenn Stevens said in a statement accompanying the board’s decision to leave rates unchanged at 4.75 percent. “An improved inflation outlook would increase the scope for monetary policy to provide some support to demand, should that prove necessary.”

--With assistance from Catarina Saraiva in New York. Editors: Paul Cox, Dave Liedtka

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net;

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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