By Kevin Buckland
TOKYO (Reuters) – The Australian dollar rose to its highest level this year on Tuesday as the central bank underlined its determination to tame stubborn inflation, while the yuan rose to a 16-month high after fresh stimulus steps from China.
The Reserve Bank of Australia kept interest rates steady as widely expected, but traders hoping for hints on when it might cut rates were disappointed, as the central bank stressed it “remains firm in its determination to return inflation to target” and indicated that further increases remain an option.
“Today’s RBA decision amounts to a hawkish stance, consistent with our view that it is too early to shift to accommodative policy,” said Tony Sycamore, analyst at IG. “However, the shift could happen very quickly… We believe the likelihood of a December rate cut is now undervalued.”
Gold is also sensitive to the outlook for the Chinese economy, and has received some additional support from stimulus measures announced by the People’s Bank of China.
Sterling rose 0.46% to $0.68695, its strongest since Dec. 28. It pared gains to $0.68435 by 0540 GMT after Reserve Bank of Australia Governor Michelle Bullock said interest rate hikes were not explicitly discussed at the meeting.
China’s new stimulus — including a planned 50 basis point cut in banks’ reserve requirements, hints at possible further easing in lending rates, and measures to support the property market — has helped boost the yuan.
Although the yuan initially fell in offshore trading after the rate cut announcement, it has since steadily risen to 0.38% at 7.0310 against the dollar as focus shifts to potential growth support.
“China needs a lower interest rate environment to boost confidence,” said Gary Ng, senior economist at Natixis. “With a more accommodative Fed, China may be more willing to embark on a new round of more accommodative policy cycles.”
The yen fell 0.36 percent to 144.12 yen per dollar after Bank of Japan Governor Kazuo Ueda said in a speech on Tuesday that the central bank could “afford to spend time” examining developments in overseas markets and economies before tightening monetary policy further.
The euro struggled to find its feet after falling about 0.5% overnight, as weak business activity surveys pointed to further interest rate cuts.
Sterling was little changed at $1.1117. A survey by S&P Global showed business activity in the euro zone contracted sharply this month as growth in the region’s dominant services sector slowed, while a slowdown in manufacturing accelerated.
Sterling rose to a two-and-a-half-year high as the Bank of England last week adopted a less dovish stance than the Federal Reserve or the European Central Bank. Sterling rose 0.09% to $1.3360, having earlier hit $1.3366 for the first time since March 2022.
The Bank of England left interest rates unchanged on Thursday, with its governor saying the central bank should be “careful not to cut rates too quickly or by too much”.
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