Bloomberg News

Aussie Falls Against U.S. Dollar as Inflation Slows Before RBA

October 30, 2011

Oct. 31 (Bloomberg) -- The Australian dollar fell against its U.S. counterpart amid prospects that ebbing price pressures will allow Reserve Bank of Australia Governor Glenn Stevens to cut interest rates as soon as tomorrow’s policy meeting.

The so-called Aussie declined against 14 of its 16 major peers as investor demand for riskier assets abated before a report forecast to show business activity in the U.S. weakened. The Australian and New Zealand dollars rallied against the yen as Japan intervened to weaken its currency.

“It’s certainly possible that we will see a rate cut from the RBA tomorrow,” said Joe Heffernan, a senior economist at St. George Bank Ltd. in Sydney. “That could potentially weigh on the Aussie dollar.”

The Australian dollar fell 0.9 percent to $1.0601 as of 12:54 p.m. in Sydney from Oct. 28 when it declined 0.3 percent. The so-called Aussie jumped 3.2 percent to 83.71 yen. New Zealand’s dollar dropped 0.4 percent to 81.75 U.S. cents. The so-called kiwi rallied 3.7 percent to 64.52 yen.

Futures traders see an 80 percent chance of a 25 basis- point reduction in the RBA’s target rate when the central bank policy makers meet tomorrow.

Australia’s annual inflation rate slowed in October for a third-straight month. Consumer prices rose 2.6 percent this month from a year earlier, compared with a 2.8 percent annual gain in September, according to an index compiled by TD Securities Inc. and the Melbourne Institute released in Sydney today.

U.S. Cooling Signs

The Institute for Supply Management-Chicago Inc. may say today its U.S. business barometer fell to 59 this month from 60.4 in September, according to the median estimate in a Bloomberg News survey. A level of 50 is the dividing line between expansion and contraction. Data due later in the week may show that American employment cooled in October, according to a separate survey.

Federal Reserve Bank of New York President William C. Dudley said last week “it’s possible that we could do another round of quantitative easing.” The Federal Open Market Committee will meet this week.

“The central bank’s meeting this week will be the focus of markets,” said St. George Bank’s Heffernan. “If we see the U.S. FOMC start to talk about the possibility of more of QE3 that would obviously be a market driver for the Aussie.”

Japan’s Finance Minister Jun Azumi said the government intervened unilaterally in the foreign-exchange market to halt the yen’s rise after the currency reached a post-war high against the dollar earlier today.

He earlier told reporters in Tokyo today that speculative activity is strong in the currency market, adding that the yen’s moves don’t reflect Japan’s economic fundamentals.

-- Editors: Rocky Swift, Jonathan Annells

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net;

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


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