Australian dollar climbs on upbeat signals from RBA

The Australian dollar ended higher today on expectations that the central bank may have come to the end of its easing cycle.

The Australian dollar ended higher today on expectations that the central bank may have come to the end of its easing cycle.

Traders said the Reserve Bank of Australia’s decision earlier in the day to lower its cash rate target to a record low of 2 per cent from 2.25 per cent was built into expectations, but what wasn’t anticipated was the optimistic commentary that accompanied the move.

RBA governor Glenn Stevens highlighted signs of improved spending by consumers, but said the cut was supported by a weak investment outlook, a high Australian dollar and low inflation.

Sean Callow, currency strategist at Westpac, said the RBA had gone to great lengths to point out signs of growth in household demand.

Mr Stevens even chose to end his statement with a reference to “encouraging trends in household demand,” Mr Callow said. “There is a whiff of end-of-cycle here.”

At 5.07pm (AEST), the Australian dollar was trading at US78.85c, up from US78.28c around the same time yesterday.

The Aussie fell initially on news of the rate cut, but then bounced back when indications of more cuts to come weren’t obvious.

Mr Stevens’ comments suggested rates were on hold for the foreseeable future, said Greg Gibbs, chief currency strategist at RBS.

“More cuts after this now appear in considerable doubt,” he added.

The RBA will announce new forecasts for inflation and gross domestic product growth on Friday.