Dollar Reaches New Three Month Low

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February 7th, 2013

Following the Reserve Bank of Australia's release of quarterly statement of Monetary Policy..the Australian dollar fell to a fresh three-month low. 

At 12pm AEDT today, the currency was trading at 1.0264 US cents, down from 1.0329 cents yesterday afternoon.

It slipped to 102.56 US cents shortly after midday, its lowest level since October.

Westpac's chief currency strategist, Robert Rennie, said the dollar weakened after the release of the RBA's statement, in which the central bank cut its economic growth forecasts.

"It's a fairly clear statement on the part of the RBA that their expectations for both CPI (consumer price index, a measure of inflation) and growth have been cut back slightly," Mr Rennie said. "It keeps the door open for another rate cut, another 25 basis points next month."

The RBA cut the cash rate 1.75 percentage points between November 2011 and December 2012, bringing it to its current level of of three per cent but opted to keep the rate on hold at its February meeting on Tuesday.

Mr Rennie said the currency, which has lost about two US cents since Tuesday, could weaken further but at a slower rate than experienced this week.

"The pace of declines we see in the last three to four days, I'd be surprised if we carry on with the same pace - that would require a stronger US dollar and a weaker euro in coming sessions to guarantee further losses."

The RBA has downwardly revised its forecasts for gross domestic product (GDP) growth to between two to three per cent in 2013, from its previous forecast of 2.25 to 3.25 per cent.

Meanwhile, Australian bond futures prices were higher at noon. At 12pm AEDT today, the March 10-year bond futures contract was trading at 96.565 (implying a yield of 3.435 per cent), up from 96.555 (3.445 per cent) yesterday afternoon. The March three-year bond futures contract was at 97.200 (2.800 per cent), up from 97.190 (2.810 per cent).