Dollar lifts as British vote eyed

The local unit has remained well supported in afternoon trade, edging closer towards US75c.

The Australian dollar remained well supported in Asian trade on Tuesday, as the UK referendum on its ongoing participation in the European Union draws closer.

Two weekend polls showed -- by tiny margins -- that UK voters were against a British exit, or ‘Brexit,’ from the EU, though polls released on Monday night were mixed.

At 4pm (AEST), the Australian dollar was trading at US74.70 cents, compared with US74.57 late on Monday. At the start of the month, the currency was trading at closer to US72c.

Reflecting the improved sentiment in markets ahead of the vote, Japan’s Nikkei Stock Average was up 0.4 per cent, while Korea’s Kospi was little changed. Hong Kong’s Hang Seng Index gained 0.5 per cent, while China’s Shanghai Composite Index rose 0.6 per cent.

Richard Grace, the global head of currency strategy at CBA said the outcome of the referendum was critical for the Australian dollar. A vote to stay in the EU, might see the Aussie dollar rise between 1 per cent to 2 per cent, while a decision to exit would carve as much as 3 per cent off the value of the currency, he said.

The RBA published minutes of its June 7 policy meeting today which added little to the understanding of the central bank’s policy outlook.

The Reserve Bank of Australia, which surprised markets in May with its first cut in interest rates in a year, said steady rates were appropriate for the economy at its June meeting.

“Leaving the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time,” the RBA said.

The cash rate currently stands at a record low 1.75 per cent. Financial markets expect a further cut before the end of the year. Some economists were expecting an overt easing bias in the minutes.

The RBA is confronted by a mixed economic picture with deflation recorded in the first quarter, even as the economy grew at its fastest pace in over three years.

Most economists expect the RBA will remain cautious until it sees second quarter inflation data in late July. Confirmation that inflation is set to remain below the RBA’s desired 2-3 per cent target for a long period, might set the scene for another rate cut in early August.

“The performance of the economy does not suggest an urgent need for a further cut in rates, especially while house prices are again beginning to increase, said Ivan Colhoun, head of Australian Economics at National Australia Bank.

“That said, continued very low inflation outcomes suggest that scope remains for lower rates should there be any signs of loss of growth momentum or that Bank feels inflation is diverging too far from target,” he added.

Dow Jones newswires