Dollar tops US74c in late trade

The Aussie swung through a wide arc before recovering amid reassuring words from Japan.

The Aussie experienced a form reversal, helped by reassuring words from Japan.

The Australian dollar has lifted above US74c in late trade, after swinging through a wide arc during the session. The unit was initially weaker on the back of further shocks in the UK, before it recovered on soothing words from Japan.

At 6.20pm (AEST), the Australian dollar was trading at US74.12 cents, compared with US73.33c at the same time on Monday. It had touched traded as low as US73.25c during the session.

Overnight, ratings agency S&P stripped the UK of its AAA sovereign rating, dropping the country two notches and calling its pending departure from the EU a “seminal event” leading “to a less-predictable, -stable and -effective policy framework.”

The instability that ensued produced a fall in the Australian dollar, which tends to come under pressure at times of market tension.

But the Aussie experienced a form reversal, helped by reassuring words by policy makers in Japan.

Bank of Japan Governor Haruhiko Kuroda said the central bank’s policy stance remained unchanged, though he declined to comment on whether he will call an emergency meeting to add to monetary stimulus.

“The Bank of Japan’s thinking on monetary policy is unchanged from what we have been saying all along,” Mr Kuroda told reporters after attending a meeting of Prime Minister Shinzo Abe’s policy-making panel.

It was the first time Mr Kuroda spoke in public since the UK vote last week to leave the European Union triggered global market confusion.

Markets will focus increasingly on a federal election in Australia on Saturday.

Nomura said that the key thing to remember about the election is that all seats in both the lower and upper houses are being contested, which opens the door further for some surprises.

Local polls have remained quite tight and markets still appear relatively complacent, it said. Nomura’s base case remains that the ruling Liberal/National coalition will win the elections, but with a significantly reduced majority.

“In a low-growth, low-inflation world, populist revolts against established political parties seem to be becoming something of a norm, raising the risk of days of protracted negotiations with minor parties and independents, in order to form a minority government,” it added.

- Dow Jones newswires