Bell FX Currency Outlook: The Australian Dollar has fallen after the Cyprus Parliament rejected a bank deposit tax designed to save the country from bankruptcy.
Stacks of euro, Swiss franc, and U.S. dollar banknotes are displayed in a bank in Bern, Switzerland in this file photo.
Australia: This morning the Australian Dollar was trading at USD 103.71, down from 103.80 yesterday. The currency dropped as low as 103.51 after the Cyprus parliamentary vote but has since regained some ground.
This is testament to the AUD's quasi-safe haven status and strong underlying demand, although we would not rule out a larger reaction should events in the Mediterranean take a turn for the worse.
The AUD was little moved by yesterday's RBA Minutes and speeches from Lowe and Debelle. The RBA is clearly in wait-and-see mode for the next couple of months, but it was interesting to see that the RBA admitted that "further reductions may be required".
The RBA noted that the AUD remains high and that the inflation outlook affords the scope to ease further, but for now is content to sit back and see if the interest-sensitive parts of the economy continue to show signs of responding to the accommodative policy in place.
Majors: The Euro had another big fall, hitting a 4-month low against the US Dollar overnight of USD 128.44. As part of a deal to get a EUR 10 billion (AUD12.55 billion) aid package, Cyprus was required to slap a levy of at least 6.75% on all bank deposits.
Despite modifying the tax so that depositors with less than €20,000 would be exempted, no MP's voted for the bill, with 36 voting against and 19 abstaining.
This has softened the European and US equity markets, as well as taking its toll on the EUR and AUD dollar. However, within an hour the ECB announced it would provide liquidity to Cyprus as needed within the existing rules, providing some support to US equities late in the session.
The EUR and AUD also recovered some ground. Cyprus on its own is very small and incidental to the global economy but investors are worried about contagion from Cyprus to some of the bigger economies like Spain, Italy and Portugal.
It will also seek other ways of making up a EUR 5.8 billion shortfall, with a bond issue, bank restructure and by trying to secure more Russian investments among the options.
The markets, tonight, will be interested in the outcome of the US Federal Reserve policy meeting and the Fed's comments on the progress of the US economic recovery. The UK government will also hand down its budget.
20 MAR AU Skilled Vacancies Feb
AU Westpac Leading Index
JN Public Holiday
US FOMC Rate Decision & Forecasts
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