Key points:
The Australian dollar hovered close to its highest level this year, sitting at $0.6839, following a strong session where it touched $0.6853. Traders appear focused on how the Reserve Bank of Australia (RBA) will shape its policy later in the day.
Though economists widely expect the RBA to hold interest rates steady, the market seems divided on the potential for cuts in the near term. Reuters’ poll of 44 economists shows just four anticipate a reduction by year-end, while traders see a roughly 60% chance of a cut.
See: Upside prevails for Aussie as seen on the VT Markets app.
The Aussie received further support from China’s decision to ease its monetary policy. The People’s Bank of China announced a 50 basis point cut to banks’ reserve requirements, a move aimed at stimulating lending in an economy that has shown signs of slowing growth.
While the Chinese yuan initially weakened by 0.16% in offshore trading, it stabilised later at 7.0590 per dollar. Given China’s importance as Australia’s largest trading partner, any stimulus from Beijing tends to reflect positively on the Aussie.
Despite the strength of the Australian dollar, there remains uncertainty in the market. While traders are pricing in a potential rate cut, there is still caution as the RBA might prefer to wait for more economic data before making any easing decisions.
If we see stronger demand from China and stable global growth, the Aussie dollar could climb towards the 70 U.S. cent mark by the end of the year, as some analysts expect.
You might be interested: The Chinese yuan strengthens to a 16-month high on Fed rate cut
Meanwhile, the euro remained subdued, trading at $1.1105 after business surveys indicated a contraction in euro zone activity. The euro’s weakness could persist if the European Central Bank signals further rate cuts, especially given the recent downturn in both the services and manufacturing sectors across the region.
Sterling, on the other hand, tracked near a 2-1/2-year peak, trading flat at $1.33445. The Bank of England’s decision to keep rates unchanged, while adopting a cautious tone, continues to influence its direction. Governor Andrew Bailey highlighted the need to avoid cutting rates too aggressively, indicating that the central bank will likely take a measured approach in the coming months.
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