Aussie Plummets As RBA Unexpectedly Leaves Cash Rate Unchanged

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Tuesday in Asia, the Aussie slumped against its major counterparts as the Reserve Bank of Australia left the official interest rate unchanged, defying financial market expectations for a 25 basis point hike.

Amid the rate announcement, the Aussie plummeted to new multi-week lows against the currencies of U.S., Canada, New Zealand and Europe.

The Reserve Bank of Australia left the cash rate unchanged at 3.75 per cent at its first board meeting of the year. The central bank governor Glenn Stevens said a hike this month was not deemed appropriate, given the previous moves by lenders to raise their rates by more than cash rate increases.

"With the risk of serious economic contraction in Australia having passed, the board had moved at recent meetings to lessen the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker," Mr. Stevens said in a statement.

The RBA began hiking rates in October last year after pushing the cash rate down to a low of 3% to support the economy during the global economic downturn.

Mr Stevens said those rises were made - in October, November and December - to lessen the monetary stimulus put in place when the outlook was much weaker. However, Australia's economic conditions have been stronger than expected, after a mild downturn a year ago.

During the first two hikes announced on October 6 and November 3, the aussie-greenback pair managed to rise to 0.9284 and 0.9370, respectively in the next 13 days after the meeting.

In contrast, the aussie-greenback pair did not appreciate, but depreciated by 5% in the next 23 days after the third hike on December 1. The pair plunged to an 11-week low of 0.8737 on December 23.

In Asian deals on Tuesday, the Aussie declined to near a 6-week low of 0.8784 against the US currency. The next downside target level for the aussie is seen at 0.874. The aussie-greenback pair closed yesterday's North American session at 0.8916.

After soaring to near a 2-month high of 0.9332 against the U.S. currency on January 14, the Aussie weakened and depreciated around 6% thus far.

The subsequent rise in the Australian currency to a high of 0.9332 on January 14 was attributed to new year trades that favored Asian assets. But the aussie dropped with Asian equities, after China shocked markets in mid January with a surprise hike in its reserve requirement ratio. The greenback also got boost from Greece worries.

During Asian deals on Tuesday, the Aussie fell to 0.9345 against the Canadian dollar, its lowest level since December 30, 2009. On the downside, 0.920 is seen as the next target level for the Australian currency. At yesterday's close, the aussie-loonie pair was quoted at 0.9464.

The Aussie has lost more than 3% against the Canadian dollar since it reached a 4-week high of 0.9637 on January 11.

A report showed earlier today that Australia's business confidence fell in December to the lowest in six months, but the Aussie did not show any reaction to this dismal report.

The confidence index dropped 11 points to 8, according to a National Australia Bank Ltd. survey of more than 400 companies released in Sydney today. A figure above zero shows optimists outnumber pessimists.

Against the currency of New Zealand, the Aussie slipped to near a 3-week low of 1.2462 in Asian deals on Tuesday. This may be compared to yesterday's close of 1.2591. If the Aussie weakens further, it may target the 1.234 level.

The Aussie that jumped to a 7-week high of 1.2777 against the NZ dollar on January 27 pared its gains thereafter, and thus far, the aussie-kiwi pair has dropped 2.5%.

The Aussie, which reached a 4-day high of 1.5598 against the euro in early Tuesday Asian deals at 10:25 pm ET lost ground thereafter. At present, the aussie is trading at a 4-week low of 1.5830 against the euro. On the downside, 1.633 is seen as the next target level for the aussie. The euro-aussie pair was worth 1.5636 at yesterday's New York session close.

The Aussie has declined 2.6% against the euro from a new multi-year high of 1.5423 hit on January 21.

At 11:15 pm ET, the Aussie touched 79.79 against the yen, falling from a 4-day high of 81.18 hit at 10:25 pm ET. If the aussie-yen pair weakens further, it may target yesterday's multi-week low of 79.35.

Traders are now likely to focus on the European session, in which the German retail sales and the Euro-zone PPI - both for the month of December are expected.

The U.S. pending home sales for December has been slated for release at 10:00 am ET.

(Market News Provided by RTTNews)