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Australian Dollar Strengthens As RBA Holds Interest Rate Steady At 2.5 Percent


The Australian dollar resumed its early advance against other major currencies in Asian deals on Tuesday after the Reserve Bank of Australia decided to retain its benchmark cash rate at a record-low of 2.5 percent. The board also noted that its previous easing measures have supported interest-sensitive spending and asset values, while it expects that further effects could be seen overtime.

The rate decision was in line with economists' expectations.

At the meeting, the Reserve Bank Board noted that the setting of the monetary policy remained "appropriate".

The board said it will "continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target."

In a statement, RBA Governor Glenn Stevens said the exchange rate may depreciate further overtime and this would help to foster rebalancing of growth in the economy.

Meanwhile, wider-than-expected second quarter current account deficit data and soft retail sales for July trimmed the aussie's strength in early Asian deals.

According to data from the Australian Bureau of Statistics, Australian retail sales rose a seasonally adjusted 0.1 percent in July compared to the previous month, standing at A$21.824 billion. This missed expectations for an increase of 0.4 percent following a flat reading in June.

A separate report showed that Australia posted a current account deficit of A$9.35 billion in the second quarter of 2013, down 7 percent on quarter. The headline figure missed forecasts for a shortfall of A$8.5 billion.

The aussie firmed to an 8-day high of 0.9041 against the U.S. dollar after the RBA announcement, adding almost 0.8 percent from a low of 0.8973 hit at 10:15 pm ET. If the aussie continues its uptrend, it may possibly eye resistance around the 0.91 level. The pair ended Monday's trading at 0.8995.

The aussie touched a fresh 2-week high of 1.4594 versus the European currency, rebounding from an early Asian session low of 1.4701. At Monday's close, the pair was worth 1.4672. A continuation of bullish trend could lead the aussie to find resistance at the 1.44 level.

The aussie advanced to 1.1541 against the NZ dollar, an increase of 0.5 percent from its prior low of 1.1480. The aussie may possibly seek resistance around 1.165 level. The aussie-kiwi pair closed deals at 1.1482 on Monday.

The aussie approached 0.9542 against the loonie, a level unseen since July 26 and was up 0.8 percent from early Asian session low of 0.9465. The aussie may test resistance near the 0.96 level. The currency cross finished Monday's trading at 0.9488.

Halting early decline, the aussie climbed to 89.99 against the yen, its strongest in more than 2 weeks. A further bull run may see the aussie facing resistance at 90.6 level. The pair was quoted at 89.39 at Monday's close.

Data from the Bank of Japan showed that the monetary base in Japan spiked 42.0 percent year-overyear in August to 172,443 trillion yen. This follows the 38.0 percent surge in July.

The Eurozone PPI for July is due in the European session.

The U.S. ISM manufacturing index for August and construction spending for July are expected in the New York session.

by RTTNews Staff Writer

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