Australian dollar steadies as RBA holds

The Australian nudged back towards US75c today after the RBA passed up an opportunity to strengthen expectations of a future rate cut.

The Australian dollar nudged back towards US75c today after the central bank passed up an opportunity to strengthen expectations of a coming interest rate cut.

At 5pm, the Australian dollar was trading at US74.85c, compared with US75.11c late yesterday.

Economists said Reserve Bank of Australia Governor Glenn Stevens gave little away in comments following a morning policy meeting, in which it was decided to leave the cash rate target unchanged at a record low of 2 per cent.

Even volatility caused in global markets as a result of uncertainty surrounding the future of Greece in the eurozone, and recent sharp falls in Chinese share prices failed to rattle the RBA.

“Despite fluctuations in markets associated with the respective developments in China and Greece, long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low,” Mr Stevens.

Su-Lin Ong, a senior economist at RBC Capital Markets, said the RBA, had to say something about the troubling circumstances in Greece and China, but probably hadn’t wanted to overstate the impact.

“All they have done is acknowledge it, because they have to,” said Ms Ong, referring to Greece and China. “They aren’t going to comment on anything that has been volatile for only a week or two.”

Many economists continue to forecast a further cut in interest rates before the end of the year as low growth, weak inflation, soft confidence levels and weak investment conspire to give the RBA a trigger.

James McIntyre, economist at Macquarie Securities, said he did not see anything in the RBA’s policy statement that suggested there was a risk of an imminent cut in August, unless there was a significant hit to confidence from developments in China and Greece over the next few weeks.

Still, “the combination of weak investment, a high currency, low inflation and muted confidence will ultimately require additional easing,” he said, adding a November rate cut remained in prospect.

Chris Tedder, a research analyst at FOREX.com, said commodity currencies remained under pressure due to “an ongoing massacre in Chinese equity markets, which is partly responsible for 5.4 per cent fall in the spot price of iron ore so far this week”.