Dollar dives to three month low


piggy bank, coins, money, dollarThe Australian dollar is at a three and a half month low following strong US retail data and after the Reserve Bank of Australia governor said he wanted the dollar around 85 US cents.

At 0700 AEDT on Friday, the local unit was trading at 89.37 US cents, its lowest level since August 30 and down from 90.31 cents on Thursday.

RBA governor Glenn Stevens said he would prefer a lower dollar over lower interest rates as a mechanism to spur the economy, and with the falling terms of trade he expected the currency’s natural level to be lower than its current rate.

“I thought (US)85 cents would be closer to the mark than (US)95 cents … but really, I don’t think we can be that precise,” Mr Stevens told the Australian Financial Review.

His comments, as well as strong US retail sales data, dragged the Aussie dollar lower overnight, ANZ senior manager FX in Auckland Sam Tuck said.

“The fact that the central bank governor saw fit to put a number on it has given the market a bit of a target to aim for,” Mr Tuck said.

“His comments have just given the market a reason to doubt where it was and follow his lead.

“He has definitely got a lot of traction for this bit of verbal intervention, but the important thing is that it shows the weak side of the currency market. If the market wasn’t prepared to go that way or there was excess demand for the Australian dollar, he wouldn’t have been able to achieve that.

“The Stevens comments took us from around 90.60 US cents to around 89.80 cents and then the strong US retail sales numbers came out.

“The US is improving and that strength in the US economy is attracting inflows, people are looking to invest there.”

US retail sales rose 0.7 per cent last month, the biggest gain in five months, signalling growing confidence in the economy and adding to increased expectation that the US Federal Reserve could begin tapering its economic stimulus program next week.

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