Aussie dollar nearly US1c higher in late trade

The local unit has extended early gains in late afternoon, following Philip Lowe’s testimony.

The Australian dollar gradually strengthened in afternoon trade following Dr Lowe’s comments.

The Australian dollar has gained almost one US cent after the US Federal Reserve decided against raising interest rates, while the new head of the Reserve Bank of Australia indicated there is little chance it will cut rates in the short term.

At 5pm (AEST) on Thursday, the local unit was trading at US76.58 cents, sharply higher from US75.65c on Wednesday.

The currency got an immediate boost in the early hours of Thursday when the US Federal Reserve left interest rates unchanged, as widely expected. It also failed to provide the market with any further certainty of a hike before the end of 2016.

“Although the statement acknowledged that the case for a rate hike “had strengthened”, this told the market no more than it already knew,” RBC’s head of G10 FX strategy Adam Cole said.

The probability of a rate hike by the end of the year has risen from around 50 per cent after the Fed’s last meeting to around 65 per cent, he said. RBA governor Philip Lowe fronted a regular parliamentary hearing later in the day, delivering an upbeat assessment of the economy.

Dr Lowe said there is a chance the cash rate could be cut to a new all-time low of 1.25 per cent, but that would depend on factors including inflation, the labour market, house prices and the global economy.

“We would argue that this is consistent with a central bank that remains reluctant to cut much further, with the case needing to be compelling,” RBC Capital Markets senior economist Su-Lin Ong said.

The Australian dollar gradually strengthened in afternoon trade following Dr Lowe’s comments.

The local currency also surged against the New Zealand dollar, touching a three-week high of $NZ1.0438, after the Reserve Bank of New Zealand left its official interest rate unchanged and signalled a cut was likely later in the year.

AAP