Australian Dollar Higher as Bond Yields Climb

 
   By James Glynn 
 

        SYDNEY--The Australian dollar was higher Wednesday as investors continued to scale back bets that the Reserve Bank of Australia will cut interest rates further, with bond yields rising across the curve.
        The Reserve Bank of Australia Tuesday lowered its cash rate target to a record low 2.0% from 2.25%, but failed to provide markets with any forward guidance on its plans for interest rates.
        Some in the markets arrived at the conclusion that the RBA is now satisfied with the level of interest rates, and they will remain low for some time, but not go any lower in this cycle.
        Yields on 10-year bonds have risen by 0.30 percentage point since Monday, and are now pressing toward 3.0%. Meanwhile, 3-year bonds yields have also nudged higher, while interest-rate futures markets now imply the RBA is unlikely to cut again.
        "Significant repricing in rates markets recently has been swift and brutal. Even yesterday's rate cut from the RBA has been rejected by markets, with yields moving significantly higher," said Martin Whetton, debt strategist at ANZ.
        At 0600 GMT Wednesday, the Australian dollar was trading at US$0.7961, up from US$0.7906 late Tuesday.
        Michael Turner, strategist at RBC Capital Markets, based in Sydney said the currency was likely to consolidate over the coming days with crucial employment data due Thursday and U.S. non-farm payrolls data due Friday.
        The RBA will also publish new economic forecasts Friday, amid widespread bets that a sharp fall in the iron-ore price since the start of the year and the stubborn strength of the Australian dollar will mean weaker growth ahead.
        On Tuesday, RBA Governor Glenn Stevens said the Australian dollar needs to fall to benefit the economy, he also highlighted the weak investment outlook and the hit to the economy from falling commodity prices.
        Earlier Wednesday, retail sales rose by a less-than-expected 0.3% in March from February, and by a lower-than-anticipated 0.7% in the first quarter from the final three months of last year.
        Economists had been expecting a 0.4% increase in March and 1.0% growth for the quarter, according to a survey of economists by the Wall Street Journal.
        The rise in retail spending in the three months through March was closely tied to purchases of household goods used in renovation and furnishing--most likely connected to Australia's home-building boom.
        Economists said the overall softness of the retail report may challenge the RBA's more upbeat view of recovering consumer demand.
        -Write to James Glynn at james.glynn@wsj.com
        (END) Dow Jones Newswires

        May 06, 2015 03:18 ET (07:18 GMT)

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