The Australian dollar held steady during the current trading session after the release of the central bank’s policy minutes and the report about the construction sector. Yesterday, the currency fell against the US dollar, rose against the euro and was flat against the Japanese yen.
The Reserve Bank of Australia released minutes of its latest policy meeting, and the statement had dovish bias. The central bank estimated in its outlook that economic growth and inflation will ease by the end of this year, slowly recovering later. As for the exchange rate, the RBA thought that it “remains above most estimates of its fundamental value.” The bank believed that downside risks for the rate come from expectations of an interest rate hike from the Federal Reserve:
The prospect of a rise in US interest rates next year, though widely anticipated, could lead to a further appreciation of the US dollar and hence a depreciation of the Australian dollar.
As for upside risks, extremely accommodative monetary policy that the Bank of Japan has implemented may drive investors to the Australian currency:
On the other hand, the recent announcements in Japan on monetary policy and pension fund asset allocation increase the probability of capital flows seeking attractive yields in Australia (and elsewhere). Such flows could hold the Australian dollar at a higher level than real economic fundamentals would imply.
The seasonally adjusted Australian Industry Group/Housing Industry Association Australian Performance of Construction Index fell 5.7 points to 53.4 in October. Unlike indexes for manufacturing and services sectors, the gauge of construction remained in an expansionary territory, indicating growth of the industry for a fifth consecutive month.
AUD/USD stayed near its opening level of 0.8558 as of 4:14 GMT today. EUR/AUD traded at 1.4462 after opening at 1.4454. AUD/JPY ticked up a little from 98.59 to 98.66.
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