The dollar rallied strongly today after the Reserve Bank of Australia signalled it might be done cutting interest rates.
At 4.30pm AEDT, the Aussie was trading at $US1.0310, up from $US1.0238 late yesterday. It traded as high as $US1.0323 in Asia. Earlier it traded at a fourth-month low of $US1.0268.
"Overall, there is a good deal of interest-rate stimulus in the pipeline," RBA governor Glenn Stevens told parliament at a hearing in Canberra. "I feel we are at the appropriate level right now."
Mr Stevens said the next move in interest rates was more likely to be down than up, but said there were growing signs of recovery in the economy.
The dollar soared on Mr Stevens' comments, and the market priced in a 22 per cent chance for a March rate cut, down from 30 per cent previously.
Earlier, Wayne Swan also acknowledged improvement in the economy, telling a business breakfast "we're beginning to see some of the signs of stimulus flowing from monetary policy into some of the non-mining sectors of the economy".
As Australia's mining investment boom cooled, the RBA cut interest rates by 1.75 percentage points to 3 per cent to cushion the economy. The last cut was announced in December.
"The governor's parliamentary committee comments gave no hint that the bank was considering acting on its easing bias," Citigroup chief economist Paul Brennan said.
Mr Brennan said the RBA might still need to cut one more time if the shift in the economy away from mining investment towards housing construction and stronger retail spending later this year wasn't smooth.
"We expect one further cut in the second quarter assuming the rebalancing of the economy is more protracted than the RBA currently expects," Mr Brennan said.
Traders will now focus on the release next week of fourth-quarter business investment data. Weakness could see talk of more interest rate cuts quickly reignited.
Mr Stevens also downplayed the risk of currency market intervention by the RBA.
"You need to be pretty confident that it is seriously overvalued, or the market is behaving in some quite irrational way, before you would launch large-scale intervention," he said.
