Authors: Kevin Buckland and Amanda Cooper
TOKYO/LONDON (Reuters) – The Australian dollar hit a 16-month high on Tuesday as stimulus measures fueled enthusiasm in broader markets and boosted the euro. Meanwhile, the Australian dollar hit a 2024 peak after the central bank reaffirmed its determination to curb inflation.
Beijing’s modern measures – including a planned 50 basis point cut in bank reserve requirements and a pledge to ease interest rates further, as well as measures to support the property market – have boosted the yuan.
Although the yuan initially weakened in offshore trading after the rate cuts were announced, it later began to rise steadily, reaching 7.0310 per dollar and up 0.38%, as attention focused on a potential boost to economic growth.
China-sensitive assets such as stocks, commodities and the euro also gained.
“It’s a good story for these currencies – particularly the euro – to get away from the problems there,” said Chris Beauchamp, IG’s chief market strategist.
He added that the U.S. Federal Reserve’s decision last week to cut interest rates by 50 basis points gave other central banks, including the People’s Bank of China, “cover” to cut their own interest rates.
“This is starting to change the narrative, and these things can change quickly, if you go from talking about a U.S. recession to the Fed ‘managing’ the economy quite well, and now the Chinese central bank steps in.”
Meanwhile, the Reserve Bank of Australia kept interest rates unchanged, as was widely expected. However, investors hoping for a hint of when a cut would come were disappointed as the central bank stressed it “remains steadfast in its commitment to returning inflation to target” and suggested further increases remained an option.
“Today’s RBA decision represents another hawkish hold, which fits with our view that it is too early for a dovish turn,” said Tony Sycamore, an analyst at IG. “But the turnaround could come very quickly… and we think the potential for a December cut is currently undervalued.”
The currency, which is often a more liquid benchmark for the yuan, was last up 0.15% at $0.6848, having rebounded from a peak of $0.68695, its highest since Dec. 28, after RBA Governor Michele Bullock said a hike had not been explicitly discussed at the meeting.
The yen weakened nearly 0.5% against the dollar to 144.275 after Bank of Japan Governor Kazuo Ueda reiterated in a speech Tuesday that the central bank “can afford to take time” to analyze markets and economies overseas before further tightening policy.
The euro struggled to regain its footing after falling almost 0.5% overnight as tender economic activity surveys pointed to further interest rate cuts.
The rate rose 0.1% to $1.1125, contrary to a downward forecast for German investor sentiment in September published on Tuesday.
The pound neared a modern 2-1/2-year high, with the Bank of England taking a much less dovish stance than either the Federal Reserve or the European Central Bank last week. It rose 0.25% to $1.3382, its highest since March 2022.
The Bank of England kept interest rates unchanged on Thursday, with its governor saying the central bank must be “careful not to cut them too quickly or too much”.
