SYDNEY: The Australian dollar fell across the board Today as investors pared chances of an interest rate rise in March after the Reserve Bank of Australia (RBA) stunned markets by leaving rates unchanged at 3.75%. The Aussie, which was amongst the best performing currencies in the world last year, fell to US$0.8784, shedding more than one US cent following the central bank's decision. Traders said stop-losses were lined up around US$0.8780, while on the charts, the Aussie was looking increasingly vulnerable to testing the critical support level of US$0.8735, its December low. Bill futures jumped with the March bills rising 21 points to 95.82, posting its biggest daily jump since June last year. The market had widely expected a 25 basis point-rate increase to 4% on the back of rising inflation, a recovering jobs market, robust consumption and strong pick up in China. But the RBA surprised and said it wanted to judge the impact of its past three moves before lifting the cash rate further. It had already raised rates by 75 basis points since October, putting it far ahead of most developed nations in removing exceptional stimulus. The Aussie also lost ground on the yen at ¥79.61, falling nearly 2% after the rate decision. Still, Adam Carr, chief economist at ICAP, sees the Australian dollar rising as the US Federal Reserve is not expected to start raising rates before the second half of the year. "It will push the Aussie higher but not much higher because everyone will be wondering what the RBA is doing," he said. Carr expects the Aussie gains to be constrained by rates uncertainty. Analysts believe the RBA is just taking a breather as it was most concerned about the pass through of higher funding costs by domestic banks. Most Australian banks have hiked mortgage rates faster in recent months than the central bank hiked its own cash rate. That prompted a senior central bank official in December to say that the effective cash rate was a good deal higher than the official rate of 3.75%. Analysts now believe that the RBA is likely to raise rates at a much slower rate than earlier forecast and that is likely to weigh on the Aussie in coming months. "We see the cash rate at 4% by mid-year," said Stephen Roberts, economist at Nomura. "But it's going to be a slow process getting the cash rate higher." — Reuters

Source