AUD/USD preserves daily losses as RBA abstains from action

Australian dollar traded lower against its US counterpart on Tuesday, after the Reserve Bank of Australia (RBA) refrained from introducing a cut of its benchmark interest rate and despite that Australian retail sales outpaced expectations in October.

AUD/USD reached a session low at 0.9058 at 4:35 GMT, after which consolidation followed at 0.9073, falling 0.36% for the day. Support was likely to be received November 29th low, 0.9056, while resistance was to be seen at December 2nd high, 0.9168.

Earlier in the day, at its monthly meeting the Reserve Bank of Australia decided to keep borrowing costs without change at the current record low level of 2.50% in line with the median estimate of experts.

RBA Governor Glenn Stevens used the same tone as at banks previous meeting, stating that the national currency was “still uncomfortably high” and that a lower Aussie “is likely to be needed to achieve balanced growth in the economy”. AUD/USD cross has lost almost 4.6% since RBAs last policy meeting.

In addition, a report showed that Australian retail sales rose 0.5% in October compared to September, after another 0.9% gain in the preceding month, while experts had expected that sales will climb 0.4%. This result has been supported by stronger sales of first necessities, as they recorded the fastest rate of increase in five months in October. Sales of shoes and clothing rose for a seventh month in a row, while, on the other hand, sales at universal stores seemed to have lost some of the momentum, gained in the preceding two months, decreasing 0.3% in October.

The deficit on Australias current account was reported to have widened during the third quarter of the year, with the figure reaching 12.710 billion AUD, following a revised down deficit figure to 12.091 billion AUD from 9.350 billion AUD previously in the second quarter. Preliminary estimates pointed a deficit at the amount of 11.500 billion AUD in Q3.

Meanwhile, the greenback received support on a large scale, after on Monday the Institute for Supply Management (ISM) reported that manufacturing activity in the United States expanded in November, with the corresponding index advancing to a reading of 57.3, or the highest level since April 2011, from 56.4 in October. This result surpassed forecasts, pointing an advance to 55.0 in October. Values above the key level of 50.0 are usually considered as an indication that activity in manufacturing has increased. The sub-index, gauging new orders, climbed to a value of 63.6 in November, while the sub-index of output in the sector rose to 62.8.

Federal Reserve Bank policymakers are expected to hold a meeting on policy on December 17th-18th. The bank will probably trim its $85 billion in monthly asset purchases “in coming months”, in case the economy continues improving, as stated in the minutes of Federal Reserves October meeting, released in November.

Simon Potter, the New York Fed’s markets group chief, said on Monday that the central bank’s reverse repurchase agreement program, now being tested, will probably be a key factor in the eventual tightening of banks monetary policy, Bloomberg imparted.

Market “participants have indicated that they expect that a facility, if executed in full scale in the future, should be an effective tool for increasing the Federal Reserve’s control of short-term money market rates,” Potter said yesterday in a speech in New York, cited by the same media.

Such a program would allow banks, broker-dealers, money-market funds and government-sponsored enterprises to lend the Federal Reserve unlimited amounts of cash overnight at a fixed rate, currently at 0.05%, while at the same time borrowing Treasuries in the so called reverse repo transactions. In a reverse repo, the central bank lends securities for a specific period of time, temporarily pumping out cash from the banking system. At maturity the securities are returned to the Federal Reserve, while the cash – to the lenders.

Lastly, ADP Research Institute will probably report on Wednesday that private sector companies in the United States added 170 000 job positions in November, which would be the fastest pace in five months, according to the median estimate of economists participated in a survey by Bloomberg News. In October economy managed to add 130 000 jobs.

Elsewhere, the Aussie was lower against the euro, with EUR/AUD cross gaining 0.20% on a daily basis to trade at 1.4905 at 7:57 GMT. AUD/NZD pair was falling 0.11% today to trade at 1.1118 at 7:58 GMT, after reaching its lowest point since October 2008 at 1.1105 on Monday.