Dollar hits new low

piggy bank, coins, money, dollarThe Australian dollar has hit a new five and a half year low, weighed down by growing interest rate cut expectations and a surging US dollar.

At 0700 AEDT on Friday, the local unit was trading at 77.55 US cents, down from 78.75 cents on Thursday. On Friday morning it fell as low as 77.20 US cents, the currency’s weakest level since July 2009.

There is a growing expectation that if the RBA does not cut the cash rate next week, then it will at least indicate that it is open to a reduction sometime this year.

This comes after the European Central Bank launched an economic stimulus plan, interest rate cuts in Canada and Singapore and the Reserve Bank of New Zealand on Thursday appeared to softened its stance on future rate hikes.

Bank of New Zealand currency strategist Raiko Shareef said the Aussie is now one of the most underperforming currencies on the market. “The Australian dollar’s fall over the past 24 hours has been nothing short of stunning,” Shareef said.

“It has shed the bounce following Wednesday’s better-than-expected inflation report, which took it above 80.00. The weight of expectation around next week’s RBA meeting continues to mount, such that a nasty snapback beckons should the RBA fails to adjust its language toward an easing bias.”

The RBA holds its first board meeting of the year on Tuesday.

Meanwhile the US dollar is stronger against most major currencies following Thursday’s statement from the US Federal Reserve.

The Federal Reserve kept the Federal Funds Rate unchanged and reiterated that it will be “patient” in raising the rate from record lows but signalled greater concern about excessively low inflation.

AAP

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