The Australian Reserve Bank interest-rate decision was the principal set-piece event in Asia on Tuesday and there was no surprise in the outcome with benchmark rates left on hold at 2.50%. The bank’s statement expressed satisfaction with recent currency trends and also dropped the bias for further rate cuts as it moved to a neutral stance. This change in positioning pushed the Australian dollar sharply higher as AUD/USD moved to highs above the 0.8900 level from 0.8730 shortly ahead of the decision.
There was a sharp decline in the Nikkei index which continued to dampen risk appetite, although the main price action had been seen during the New York session as Wall Street declined by over 2%, the biggest daily decline in 7 months. USD/JPY had retreated to below the 101 level for the first time in over 8 weeks before finding support at lower levels.
The latest Spanish unemployment data was weaker than expected with a January increase of 113,000 over the month. The recent labour-market data has been very erratic which dampened the impact this time around and short-term players were unable to sustain a EUR/USD push below 1.3500. The Euro then consolidated in relatively narrow ranges with the ECB’s full sterilisation of bond purchases in the weekly tender dampening speculation over a more expansionary policy at this week’s ECB meeting.
Dollar damage from Monday’s weak manufacturing release was eased slightly by a Fed study which suggested that underlying labour-market conditions may be more favourable than suggested in official data. There was also a small rise in US Treasury yields which provided support.
Caution was an important feature ahead of Thursday’s ECB policy decision and key US labour-market data later this week. USD/CHF was able to hold above the 0.90 level and USD/JPY moved to daily highs around 101.60 as Wall Street held steady at the open.
Sterling remained under pressure in early Europe with a GBP/USD slide to near 1.6250. In contrast to Monday’s data, the latest UK construction PMI data was sharply higher than expected at 64.2 from 62.1 previously which was the highest reading for seven years. Cable spiked higher following the release with a peak near 1.6350, but it was unable to sustain the move and retreated to re-test the 1.63 support area.