Australian Dollar Slumps, though Indicators Show It May Rise Soon

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Australian Dollar Slumps, though Indicators Show It May Rise SoonThe Australian dollar fell on Thursday though most analysts are optimistic that currency will pick up once foreign funds take note of the high bond yields in the Australia.

Some factors such as European Central Bank’s possible move to boost stimulus and Federal Reserve recent stance that indicated that it intends to retain the low interest rates may push foreign investors to look for higher yields.

“The search for yield is back on,” said Greg Gibbs, a Singapore-based currency strategist at Royal Bank of Scotland. He added that the current trend realistically favours the Aussie, with the Reserve Bank of Australia retaining its benchmark cash rate at 2.5 percent, which stands tall compared to zero in most advanced economies, reported The Australian.

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The yields of U.S. 10-year bonds plunged to 2.55 percent on Wednesday, their lowest level in six months. This follows a similar pattern followed by other bond yields internationally.

U.S. Federal Reserve Chair Janet Yellen recently said that the central bank will retain its interest rates close to zero for some time in order to shore up the economic growth. Mark Carney, the Governor of Bank of England, was quoted on Wednesday as saying the UK central bank has no plans to hike interest rates anytime soon.

The Reserve Bank of Australia retained its cash rate in its last meeting, lowering the possibility of any interest rate hikes anytime soon.

“The bottom line is that nobody can see where the policy tightening is coming from,” RBS’ Gibbs said.

The Aussie stood at US93.90 cents at 5 p.m. in Sydney today, up from US93.98 on Thursday. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Yashu Gola at yashu@forexminute.com