CANBERRA: Australia’s dollar slumped below 74 US cents for the first time in six years overnight, as the US dollar continued to go from strength to strength.
The Aussie briefly dipped to US73.98¢ just after midnight AEST on Wednesday morning before recovering. At 6am AEST, it is fetching around US74.50¢. Overnight, the US greenback hit a five-week high against most major currencies on the back of continuing global concerns, as unfinished efforts to address Greece’s debt crisis and a rout in commodities pushed investors into the safest assets.
The Australian dollar’s fall comes after RBA Governor Glenn Stevens kept interest rates at a record low for a second month on Tuesday and said a weaker currency is still needed.
The currency has fallen against all except one its 16 major counterparts this month after the Reserve Bank of Australia left its benchmark at 2 per cent Tuesday as economists forecasted.
“We still expect the Aussie dollar to continue to decline,” said Mitul Kotecha, head of Asia Pacific foreign- exchange strategy at Barclays Plc in Singapore. “The weakness of non-mining activity, deteriorating risk conditions and the overvaluation as commodity prices decline all bode negatively for Aussie dollar.”
“The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies,” RBA governor Glenn Stevens said in a statement following Tuesday’s decision.
“Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices.”
Stevens identified 75 cents as his preferred exchange rate last December and has repeatedly spoken this year of the need for a lower exchange rate.
All 27 economists surveyed by Bloomberg had predicted the RBA to keep rates on hold at Tuesday’s meeting. Swaps indicate a better than 50 percent chance of at least one reduction by year- end.
“The odds of an RBA rate cut are high, and much higher than the market has priced in at this point,” said Todd Elmer, a Singapore-based strategist at Citigroup.
“The market’s not discounting a great deal of risk of easing over the next several quarters.”
Australia’s dollar has declined 3.8 percent this year, the worst performer after New Zealand’s kiwi of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
