The dollar has been stuck between 92 and 95 US cents since March, with weak iron ore prices weighing on the currency. Photo: Bloomberg
Australia’s dollar has held on to its gains after the Bank of England surprised the market, saying it was in no hurry to hike interest rates.
The Aussie was fetching 93 US cents on Thursday afternoon, having rallied in overnight trade in Wednesday on downbeat economic data from the US.
But further gains in the local unit are expected to be limited, with the currency not able to sustain a break above 93 US cents.
The Bank of England indicated it would keep interest rates at historical lows until next year, saying that it did not expect strong earnings growth.
The bearish assessment whacked sterling, sending the Australian dollar to a two month high against the pound at 55.78 pence.
But ANZ head of global economics Brian Martin expected sterling’s weakness to be short-lived.
“Whilst the tone of the report was dovish and the BoE are clearly data watching, sterling is vulnerable in the short term. But on any signs of a re-acceleration in growth and pick-up in wages, expectations of a rate increase [in the fourth quarter] are likely to rise again, and with them sterling,” Mr Martin said.
The Aussie is set to linger in a tight trading range. It has been stuck between 92 and 95 US cents since March, with weak iron ore prices weighing on the currency.
Greg Gibbs, a strategist at the Royal Bank of Scotland, said the Aussie remained a proxy for the financial conditions in China.
“Weaker data in China should tend to cap the [Australian dollar], but may not be sufficient to push it lower,” Mr Gibbs said.
“However, notwithstanding surprisingly low credit growth in July, which may reflect tighter financial conditions, Chinese financial markets are not exhibiting broader signs of stress. In fact, Chinese interest rates across the maturity curve have fallen back to lows since June, which suggests that stress that may be developing in some sectors is not spreading across the broader financial system.”
An FXCM market analyst, David de Ferranti said the Aussie was likely to idle at 93 US cents for the rest of the week in the absence of any significant economic data.
He said the local unit was “rescued” from a break below 92 US cents thanks to an upbeat domestic consumer and business confidence data.
“However … sellers are likely to keep AUD/USD capped below the pair’s 2014 highs near 95 US cents.”