The Australian dollar came under renewed selling pressure on Tuesday as the consolidation of global imbalances continues to fuel a rally in its US counterpart.
The Aussie dropped briefly to touch a four-year low around $US86.5 cents on weak trade data and an upward revision in unemployment, before recovering to around $US86.9 cents as the market took heart from strong retail sales figures.
However, the main driver of more general weakness is a new surge in the US dollar, spurred by another bout of extreme monetary easing by the Bank of Japan.
The BoJ on Friday caught markets off-guard by announcing a larger-than-expected boost to it quantitative easing program, less than 48 hours after the US Federal Reserve confirmed a halt to its own six-year stimulus scheme.
Tokyo is hoping that its latest monetary intervention will weaken the currency sufficiently to help kick-start an anaemic export economy while importing enough inflation to heat up domestic demand.
An instant rally in the Tokyo stock exchange, which on Tuesday looked sustainable, suggests investors share this optimism.
National Australia Bank’s global co-head of foreign exchange strategy, Ray Attrill, said the move constituted a delicate balancing act.
“In the lead-up to last week’s easing, there was a lot of Japanese business lobbies starting to express some disquiet at the dollar-yen exchange before it even got to Y110,” he said.
“Small and medium-sized enterprises are basically suffering the consequences of a lower yen on higher input costs, and they not getting any of the benefit because they’re not exporters.”
Full article: Aussie under pressure amid new currency war (The Sydney Morning Herald)