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Aussie Jumps Higher on Stevens Comments

H.S. Borji
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Aussie Jumps Higher on Stevens Comments

The Australian dollar advanced sharply against its US counterpart Tuesday after Reserve Bank of Australia Governor Glenn Stevens made surprisingly optimistic comments about monetary policy.

The Aussie, as the Australian currency is known, surged to an intraday high of 0.9421 US. The AUDUSD pair would later consolidate at 0.9395, advancing 0.23 percent. The pair is testing the 0.9394 resistance. Above this level, 0.9415 is the next target. On the downside, initial support is located at 0.9361, above the 50-day exponential moving average.

Despite recent volatility, the AUDUSD has advanced 0.4 percent since July 16.

Speaking at the annual Anika Foundation Luncheon, RBA Governor Glenn Stevens defended low interest rate policies but gave a sobering assessment of the US Federal Reserve’s quantitative easing program.

Referring to QE, Stevens said “the only honest assessment is that the evidence is hard to read.”

“The US economy, where the QE actions have been the most aggressive, certainly has seen recovery, though at only a moderate pace. Business capital spending, perhaps a high level gauge of ‘real economy’ risk-taking, has risen in the US, but has hardly been strong and it remains quite weak in several other major economies.”

Stevens also urged businesses to focus less on risk aversion and more on growth, despite acknowledging concerns about excessive risk-taking in the financial markets.

“[B]usinesses in many places are more conscious of risk, relative to return, than they were in the pre-crisis period,” Stevens said. “At some stage, hopefully share market analysts and the investor community will ask fewer question about risk reduction, and more about the company’s growth strategy.”

Stevens refrained from talking down the Australian dollar, which has been described by the RBA as being “historically high.” This was likely the biggest factor for the Aussie’s rebound Tuesday.

The Aussie came under pressure earlier this month after Stevens warned the markets about the overvalued nature of the currency.

Speaking at the Australian Meeting of the International Econometric Society earlier this month, the RBA Governor said the Australian dollar was overvalued, “and not by just a few cents.”

In terms of economic data, Australia had a quiet release schedule Tuesday.

The Australian Bureau of Statistics on Wednesday will release second quarter inflation data. Australian consumer prices are forecast to have advanced at an annual rate of 3.1 percent in the second quarter, up from the 2.9 percent pace in Q1.

In other trading, the Aussie surged against the New Zealand dollar, as the AUDNZD climbed 0.5 percent to 1.0840. The pair, which has advanced more than 1 percent since July 16, faces initial support at 1.0770 and resistance at 1.0848.

On Wednesday the Reserve Bank of New Zealand is expected to raise interest rates for the fourth time in as many months, as policymakers look to stay ahead of the inflation curve. The RBNZ has raised the benchmark lending rate by 25 basis points in each of the last three months.

The AUDJPY advanced 0.3 percent to 95.32. The pair faces initial support at 94.88 and resistance at 95.47.

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