Australian dollar higher on interest rate expectations

Story link: Australian dollar higher on interest rate expectations

The Australian dollar reached its higher level in relation to the US dollar in 10 years on Monday as investors anticipated Tuesday’s meeting of the Reserve Bank of Australia, which is widely expected to raise interest rates. The Bank’s concern over inflation was heightened by data showing that retail sales were 0.9 percent higher in February, against an expected rise of only 0.4 percent. Some analysts, however, suggested that the Bank might want to wait to do anything about rates until quarterly inflation figures come out on April 24. In any case, the Aussie added 1.2 percent versus the greenback to $0.8180 in mid-afternoon trade in New York.

Sterling also strengthened on the session even though the UK purchasing managers’ index fell from 55.4 in February to 54.4 in March, falling more than had been expected. Analysts said that manufacturing was still healthy despite the decline. Separate data from the Bank of England showed a significant rise in the amount borrowed against equity by homeowners in the fourth quarter of 2006. With some analysts expecting another UK interest rate hike in May if not this month, sterling added 0.3 percent to £0.6761 against the euro and was 0.5 percent higher to $1.9780 versus the US dollar, a two-month high.

The euro also gained on the greenback, adding 0.1 percent to $1.3370 even though the Eurozone purchasing managers’ index was slightly lower in March.

The dollar was also lower in relation to the Japanese yen, dropping 0.2 percent to ¥117.60 as US manufacturing also showed weakness as prices paid by manufacturers were higher while orders and employment figures were weaker. The yen, meanwhile, was unmoved versus the euro at ¥157.30.