Forex - Aussie down as RBA holds at 2%, says scope for easing if needed

Posted on at - The Aussie traded weaker on Tuesday after the central bank held interest rates steady as expected.

The Reserve Bank of Australia held its cash rate at a record low 2% Tuesday as expected on Tuesday, signalling scope for easier policy if future economic data warrants such a move.

AUD/USD traded at 0.7117, down 0.08%, while USD/JPY changed hands at 120.81, down 0.14%.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was quoted at 99,00, down 0.05%.

Overnight, the dollar extended losses against the other major currencies on Monday, after data showed that manufacturing activity in the U.S. contracted again in January, holding near levels not seen since July 2009.

The Institute for Supply Management said its index of purchasing managers inched up to 48.2 last month from a reading of 48.0 in December. Analysts had expected the manufacturing PMI to rise to 48.1 in January.

The report came after the Commerce Department said that personal spending was flat last month, missing forecasts for a gain of 0.1%. Personal spending for November was revised up to 0.5% from a previously reported rise of 0.3%.

Personal income, meanwhile, rose by 0.3%, above forecasts for a 0.2% gain and after rising 0.3% a month earlier.

The Japanese currency remained under pressure after the Bank of Japan’s shock decision on Friday to cut its deposit rate into negative territory as part of an ongoing effort to combat deflation.

The shift to negative interest rates is designed to encourage commercial lenders to use excess reserves they keep with the central bank to lend to businesses.

The BoJ also said it had not ruled out deeper cuts, warning that it would cut the interest rates further into negative territory if necessary.

Separately, official data on Monday showed that manufacturing activity in China contracted for a sixth straight month in January.

The Chinese manufacturing PMI slid to 49.4 from 49.7 in December, falling further below the 50 level separating contraction from growth. A separate report showed that China’s Caixin factory PMI ticked up to 48.4 from 48.2 in December, indicating that the world’s second largest economy got off to a weak start in 2016.


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