Aussie dollar spikes despite rate cut

LONDON (AP) — The Australian dollar was the main mover in fairly subdued financial markets Tuesday after the country’s central bank cut its main interest to a record low.

The currency was up 0.9 percent at $0.8996 as the quarter-point rate cut from the Reserve Bank of Australia, which took the main rate to 2.5 percent, was accompanied by a less dovish statement than expected. Notably, the bank removed language about the potential for further cuts.

“Hopes for a large 50 basis point cut were disappointed with the Bank settling for another 25 point move and a neutral tone in its accompanying statement,” said Jane Foley, senior currency strategist at Rabobank International. “The Aussie dollar duly found support.”

Australian shares did not benefit from the rate cut, and the S&P/ASX 200 ended 0.1 percent lower at 5,105.60.

Australia has enjoyed a decade-long boom in mining and related construction that helped it avoid recession during the global financial crisis. Growth, however, is now slowing as China’s economic growth has cooled and dragged down prices for commodities such as iron ore and coal.

Elsewhere, the mood in financial markets was fairly muted, though European stocks eked out modest gains following a mixed performance in Asia. Wall Street was poised to open flat.

In Europe, the FTSE 100 index of leading British shares was more or less unchanged at 6,619 while Germany’s DAX rose 0.3 percent to 8,430. The CAC-40 in France was 0.2 percent higher at 4,057. For the U.S. opening, both Dow futures and the broader S&P 500 futures were expected to open steady.

Stocks appear to have come off the boil in recent sessions as the run of corporate and economic news that marked the turn of the month has slowed down. With August traditionally a low-volume trading month, many analysts think stocks may drift over the coming period.

The main focus in markets remains on when the U.S. Federal Reserve will start to reduce its monetary stimulus. At present, the Fed is buying $85 billion worth of financial assets a month in an attempt to keep long-term borrowing rates low and inspire growth. Economists remain divided whether the Fed will start the so-called tapering in September or wait until later in the year.

The dollar’s near-term fortunes will also likely rest on when the Fed tapering will start. Over recent weeks, it’s largely remained range-bound, particularly against the euro. On Tuesday, the euro was up 0.2 percent at $1.3278 while the dollar was 0.1 percent lower at 98.22 yen.

Earlier, Japan’s benchmark Nikkei 225 finished 1 percent higher at 14,401.06 but South Korea’s Kospi shed 0.5 percent to 1,906.62. Hong Kong’s Hang Seng dropped 1.3 percent to 21,923.70, dragged down by HSBC Holdings, which plunged 5 percent a day after the bank reported weaker-than-expected revenue for the first half of the year.

Oil prices were steady too, with the benchmark New York rate up 28 cents at $106.84 a barrel.

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