AUD/USD rose on bets RBA will keep interest rates on hold this year

Australian dollar traded on higher levels against its US counterpart on Friday, as expectations that the Reserve Bank of Australia (RBA) will consider a reduction in interest rates this year have diminished.

AUD/USD reached a session high at 0.9446 at 6:13 GMT, after which consolidation followed at 0.9438, still gaining 0.46% on a daily basis. Support was likely to be received at September 30th low, 0.9280, while resistance was to be encountered at September 23rd high, 0.9457.

Westpac revised its forecasts that the RBA will reduce its benchmark interest rate in February and May next year, as earlier the bank had predicted a 25-basis-point cut in November this year and another one in February. This became clear from a report released yesterday. National Australia Bank Ltd. also changed this week its projections that a rate cut might happen in February 2014, from November previously. “We’ve shifted up our year-end forecast for the Australian dollar,” said Robert Rennie, the Sydney-based chief currency strategist at Westpac Banking Corp. (WBC), which suggests the AUD/USD cross will reach 0.9500 by December 31st from 0.9200 previously. “Australian households are showing less signs of risk aversion. We’ve seen signs of stabilization and improvement in China.”, as cited by Bloomberg.

This forecast by Westpac implied that market players will probably increase their appetite for high-yielding currencies, such as the Aussie, despite the current budget deadlock in the United States.

Traders saw a 69% probability that Australian central bank will maintain its benchmark rate at the current record low level of 2.50% by its December 3rd meeting on policy, as the odds of such an action were 62% a month ago.

Meanwhile, the US dollar was under continuous pressure amid uncertainty over the possible implications on US economic recovery after the partial US government shutdown. President Barack Obama said that there was only “one way out” of this situation for Republican House Speaker John Boehner – to allow a vote on a stopgap spending bill without conditions.

In addition, Fed President for Atlanta Dennis Lockhart said yesterday that the insufficient economic data would tend to introduce caution among Fed policymakers whether to trim the pace of asset purchases.

Another selling impulse for the greenback was submitted on Thursday after the Institute for Supply Management (ISM) reported that its index, gauging business activity in the sector of services, unexpectedly fell to a reading of 54.4 in September from 58.6 in August. The median estimate by experts pointed a drop to 57.0.

Elsewhere, the Aussie was higher against the euro, with EUR/AUD cross decreasing 0.47% on a daily basis to trade at 1.4437. AUD/NZD pair was up by 0.34% to trade at 1.1370.