Australian Dollar Falls After RBA Comments

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The Australian dollar was dragged down by a fresh wave of uncertainty from comments made by Reserve Bank of Australia Governor Glenn Stevens.

At 4.20pm AEST, the Aussie was down to $US1.0522 from $US1.0587 late yesterday. Against the Japanese yen, the local currency was at Y80.34, down from Y82.205.

The Reserve Bank of Australia decided to leave the cash rate unchanged at 4.75 per cent at its board meeting on Tuesday. Governor Glenn Stevens cited conditions in global financial markets have been very unsettled over recent weeks, as participants have confronted uncertainty about both the resolution of sovereign debt problems and the prospects for economic growth in Europe and the United States. As a result, the outlook for the global economy is less clear than it was earlier in the year.

Mr Stevens said “At this stage, little evidence is available to gauge any effects of the European and US problems on other regions.” “Overall, the near-term growth outlook continues to look somewhat weaker than was expected a few months ago. Beyond the near term, growth is still likely to be at trend or higher, unless the world economic outlook continues to deteriorate,” he said.

Mr Stevens said a key question will be the extent to which softer global and domestic growth will work, in due course, to contain inflation.

“Most financial indicators suggest that monetary policy has been exerting a degree of restraint. Credit growth has declined over recent months and is very subdued by historical standards, even with evidence of greater willingness to lend. Most asset prices, including housing prices, have also softened. The exchange rate is high. Each of these variables is affected by other factors as well, but together they point to financial conditions being tighter than normal.”

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