Dollar lifts amid uncertainty

The Aussie has remained above US74c in late trade, despite global and local unknowns.

Attention is still fixated on the continued fallout from the UK’s Brexit referendum.

The Australian dollar remained resilient on Wednesday in the absence of fresh local economic data, as attention was still fixated on the continued fallout from the UK’s Brexit referendum.

At 5.30pm (AEST), the Aussie was trading at US74.18 cents, compared with US73.86c late on Tuesday.

Support for the currency remains in place, with commodity prices and regional shares showing some strength, said Joe Capurso, currency strategist at CBA.

Mr Capurso said he expected upside in the Australian dollar to be limited on the implications of the UK’s vote. A focus for markets over the coming days should be the coming EU leaders’ summit to discuss Brexit, with some urging the UK to move quickly to leave the bloc, he added.

Locally, the outcome of Saturday’s federal election is anything but assured. Polls tend to favor the return of the Conservative coalition, but political analysts are pointing to Brexit as an example of the unexpected happening.

All seats in both the upper and lower houses of parliament will be contested, with minor parties such as the Greens expected to attract some support in the lower house, where government is formed.

Also, the board of the Reserve Bank of Australia is set to meet Tuesday for the first time since the market shake-up on the Brexit vote. But few observers expect the RBA to announce an emergency rate cut. Some say that would just scare investors and damp confidence.

Interest-rate swap markets have priced in a 30 per cent chance that the RBA will make a cut next week, which is up from 20 per cent before the Brexit result. Betting for a cut in August has risen to 60 per cent from 40 per cent.

“While these events (Brexit) make Westpac expect a rate cut in August with near certainty, we don’t believe they will spook the bank into an emergency cut in July,” said Justin Smirk, an economist at Westpac.

The RBA previously cut rates in May, by one quarter of a percentage point to 1.75 per cent. That cut followed unexpectedly benign first-quarter inflation data. Another inflation update will be published in late July.

A close watch was being kept on Japanese policy makers as a strong yen prompted talk of possible direct market intervention.

Japanese Prime Minister Shinzo Abe told his finance minister and the central bank chief to undertake any “necessary measures” to support the economy and financial markets.

“I want them to closely communicate with the rest of the (Group of Seven) countries through all existing channels and take necessary measures in a flexible manner from economic and financial perspectives,” Mr Abe said.

- Dow Jones newswires