Rate Outlook Lends Support To Local Dollar
Sydney Morning Herald
Wednesday April 21, 1999
The Reserve Bank dashed hopes of another monetary policy easing yesterday, helping the Australian dollar to consolidate recent gains.
Overnight the dollar hit a high of US65.30c on strong buying by US investment banks. But when the local market opened it drifted back, ending the session at US64.88c, unchanged from Monday's close. In early offshore trading last night, the currency was nudging US65c again.
Some traders remained highly optimistic about the dollar's prospects, predicting that commodity prices would continue rising.
HSBC Markets technical strategist Mr Tony Cripps said: "There's a growing perception that regional recovery is going to spur resources higher."
Prospects for an upgrade to Australia's international credit rating also may give the currency a lift.
A leaked report from Deutsche Bank suggested Australia's currency rating could be upgraded to AA+ from AA by international credit rating agency Standard and Poor's after the May 12 Budget.
Not everyone was convinced the dollar would continue to rise quickly.
Bankers Trust's manager of foreign exchange, Mr Matt Gilmour, said: "The big difference in the market is now whether you are a super bull or a cautious bull.
"While the story looks positive, you've got to remember that the dollar is 18 to 20 per cent off its lows, so it's probably got a lot of the stronger commodity prices already factored in."
Last year the dollar plunged to US55.30c, an all-time low, at the height of the financial market turmoil in August and as commodity prices hit rock bottom.
Nevertheless, Mr Gilmour said the dollar would probably hold its ground between US64.80c and US65.30c.
In a speech to business economists, Reserve Bank assistant governor Mr Glenn Stevens indicated that interest rates were on hold even though inflation had been below the central bank's 2 to 3 per cent target for nearly two years.
ABN AMRO treasury strategist Mr Peter Clay said: "The Reserve Bank is certainly not going to mechanically apply some inflation target regime. Their inflation objective is a whole lot broader than other people had given them credit for and monetary policy looks like it's on hold for the foreseeable future."
Benchmark 10-year September 2009 Commonwealth Government bond yields finished at 5.34 per cent, down six basis points.
© 1999 Sydney Morning Herald
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