Dollar falls after central bank raises rates

Dollar falls after central bank raises rates

TOKYO Australia's dollar fell on Tuesday after the central bank surprised markets by raising rates by a smaller than expected quarter point.

The Reserve Bank of Australia decided to slow down the pace of tightening because the cash rate had been increased substantially in a short period of time, but left the door open for additional hikes.

The Aussie fell by 0.97 per cent before trading down 0.47 per cent at $0.6484.

Ray Attrill, head of FX strategy at National Australia Bank in Sydney said that the RBA hasn't been persuaded by what other central banks are doing, which is why it's so that they don't have any concerns about the exchange rate.

The currency had been below the top end of its range since Sept. 23 at $0.6537, according to the RBA's decision. It dropped to a 2 -- 1 2 year low of $0.63635 last week.

The sterling was barely changed at $1.13175, the highest level since Sept. 22, the day before the new government roiled markets with its mini-budget of tax cuts funded by expanded borrowing.

British Prime Minister Liz Truss was forced to back down from the plan on Monday because of a party rebellion.

The euro was close to the highest since Sept. 22, last changing hands 0.15 per cent stronger at $0.9838.

The U.S. dollar went up overnight due to a slide in Treasury yields after local economic data showed a slowdown in manufacturing, suggesting that aggressive Federal Reserve hikes are already being felt.

The dollar index, which measures the currency against six peers including sterling and the euro, was flat at 111.55, not far from Monday's low of 111.46, a level last seen on Sept. 23. It had soared to a two-decade high of 114.78 last Wednesday.

The Institute for Supply Management's ISM survey showed that the U.S. manufacturing activity was the slowest in nearly 2 -- 1 2 years in September, with a measure of inflation at the factory gate decelerating for a sixth consecutive month.

The dollar rally has more to run, and the Commonwealth Bank of Australia predicts sterling's respite will be short-lived.

Over the coming month, USD can remain elevated as the FOMC Federal Open Markets Committee continues to hike aggressively and the global economy enters a recession, CBA strategist Joseph Capurso wrote in a client note.

He noted that global recession risks can push GBP down significantly, and the weak UK outlook will keep GBP under pressure over the medium-term.

The dollar was a 0.14 per cent higher at 144.77 yen, keeping it below 145 after briefly going above that level on Monday for the first time since Japanese authorities intervened to support their currency on Sept. 22.

If sharp and one-sided yen moves persist, the Japanese finance minister Shunichi Suzuki said on Monday that authorities are ready for decisive steps in the foreign exchange market.

New Zealand's kiwi was little changed at $0.5716, still close to the top of its range since Sept. 26.