Reuters: US Dollar Report: FOREX-Aussie slumps after RBA surprise, dollar near 2-mth low

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FOREX-Aussie slumps after RBA surprise, dollar near 2-mth low May 1st 2012, 06:29 Tue May 1, 2012 2:29am EDT * RBA surprises markets by 50 bp rate cut * Dlr index near 2-mth low after lacklustre US data * Yen hits 2-month high vs USD, 3-month high vs AUD * Dlr/yen charts look bearish after major supports broken By Hideyuki Sano TOKYO, May 1 (Reuters) - The Australian dollar tumbled on Tuesday after the Reserve Bank of Australia slashed rates by a deeper-than-expected 50 basis points while the U.S. dollar stayed near a two-month low against a basket of currencies following a string of disappointing data. A sharp fall in business activity in the U.S. Midwest combined with data showing Spain in recession helped dent investor appetite for risk - pushing the yen to fresh two-month highs against the dollar after it rallied across the board overnight and broke through major chart resistance levels. Markets had been expecting a 25 basis point rate cut from the Australian central bank and the surprise sent the Australian dollar more than one percent lower to $1.0318 and to a three-month low of 82.28 yen. It traded near a five-month low against sterling, which rose above A$1.5700. Against the greenback, the Aussie's next support level is seen at $1.0247, a low hit last month and some market players think the currency could find support around there given that even with the rate cut the Aussie still boasts the highest interest rate among major currencies at 3.75 percent. "You can't really escape the fact that the Aussie remains attractive when both the dollar and the euro don't look so great," said a trader at a U.S. bank. Signs of weakening momentum in the U.S. growth have rekindled speculation of further monetary easing down the road. "The market had bought the dollar on the ground that there would be no QE3. But that has changed," said Seiya Nakajima, chief economist at Itochu Corp. The Midwest manufacturing data came in tandem with modest consumer spending figures, both of which followed Friday's weaker-than-expected first-quarter GDP report. The dollar index stood at 78.779, flat in Asia but only a whisker away from a two-month low of 78.638 hit on Monday and down 3.7 percent from its peak in January. Against the yen, the dollar fell to 79.67, it lowest level since late February. Market players said dollar/yen charts look bearish after the pair broke below major supports such as the cloud top on its weekly Ichimoku chart at 80.42 and the 50 percent retracement of its February-March rally at 80.10. The next key support level is seen at the 100-day moving average at 79.58 but some see it testing more important support at around 78.10, the cloud bottom on weekly Ichimoku charts. In the near term, however, with the dollar already trading near the lower band of its Bollinger band, there might be limited room for further falls, said Teppei Ino, currency strategist at the Bank of Tokyo-Mitsubishi UFJ. The yen may also be hampered by speculation about further easing from the Bank of Japan even though the central bank's action last week was seen generally as an incremental rather than significant step. "One shouldn't underestimate the fact that the BOJ eased policy even as it upgraded its economic assessment last week. I don't remember the BOJ doing such things before," said Kimihiko Tomita, the head of forex at State Street. "I think investors are likely going to recognise this," he added. The euro stood at $1.3244, not far from a three-week high of $1.32706 hit last week, though some see risk of a further retreat ahead of weekend elections in Greece and France. Trade was slow in Asia, with markets in many countries were closed for the Labour Day holiday. Japanese corporate flows were limited due to a string of national holidays, with Tokyo markets only trading on Tuesday and Wednesday this week. Link this Share this Digg this Email Reprints

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