The Australian dollar slid to a three-week low against its U.S. counterpart after the Reserve Bank of Australia unexpectedly lowered its key interest rate to the least since 2009.
The so-called Aussie dropped at least 0.3 percent versus all 16 of its major peers as a global slowdown drags on commodity prices that have helped drive 21 years of growth. The yen fell amid speculation Japan may act to weaken the currency. The euro rose as Spanish and Italian bonds advanced before an Oct. 4 meeting of the European Central Bank. South Africa’s rand gained versus the U.S. dollar for the first time in three days.
The Aussie is “clearly reacting to the RBA overnight with this drop,” said Chris Walker, currency strategist at UBS AG (UBSN) in London. “We still think it’s going lower and moving back towards parity.”
The Australian dollar fell 0.5 percent to $1.0310 at 7:40 a.m. New York time, after touching $1.0292, the lowest level since Sept. 7. The yen weakened 0.4 percent to 100.93 per euro and lost 0.2 percent to 78.12 per dollar. The 17-member euro added 0.2 percent to $1.2913.
RBA Governor Glenn Stevens and his board lowered the overnight cash-rate target by a quarter percentage point to 3.25 percent, the central bank said in a statement in Sydney today.
The decision to end a three-month pause was predicted by nine of 28 economists surveyed by Bloomberg News. Swaps markets indicated before the RBA announcement that there was a more than 70 percent chance of a reduction in the cash-rate target, according to data compiled by Bloomberg.
Lower interest rates reduce the yield on a nation’s fixed- income assets, making the currency less attractive to investors from overseas.
Yen Intervention
The yen slid against all of its 16 major peers except the Australian dollar after Japan’s new Finance Minister Koriki Jojima said the government will “take bold actions against the currency’s excessive moves, if necessary.”
His comments echoed those used by predecessor Jun Azumi, signaling that intervention in currency markets remains an option.
“The new finance minister was pretty clear that the rhetoric hasn’t changed, even though the post has,” UBS’s Walker said. “We’re at levels where previously they were intervening. Once you get around 80, people think you might get a further bout.”
Japan hasn’t intervened in the currency market since November, according to the finance ministry.
Gains Limited
Gains in the euro were limited before data tomorrow that economists in a Bloomberg survey said will show European retail sales fell 0.1 percent in August from July, when they slipped 0.2 percent. Figures yesterday showed unemployment in the euro area climbed to a record 11.4 percent in August.
The Frankfurt-based ECB will keep its main refinancing rate unchanged at a record low of 0.75 percent this week and will reduce it by the end of the year, a separate Bloomberg survey of economists showed.
Spain’s Economy Minister Luis de Guindos said the nation is pressing on with its analysis of whether to seek a bailout, moving beyond his call last week that the European Union needed to provide more guidance on conditions.
‘Positive Factor’
“If Spain decides to ask for a bailout, that’s a positive factor for the euro,” said Noriaki Murao, New York-based managing director of the marketing group at the Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “That could reduce risks of a euro breakup.”
The euro lost 3 percent over the past six months, the biggest drop after the Swiss franc among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar rose 0.4 percent and the yen jumped 6.1 percent. The Aussie has depreciated 0.7 percent, the indexes showed.
The rand strengthened as foreign buying of South African government bonds increased after they were included in a key index.
South Africa’s currency advanced as much as 0.7 percent and traded 0.2 percent stronger at 8.3621 per dollar. Yields on 6.75 percent notes due 2021 fell nine basis points to 6.57 percent.
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