The dollar hit two-month lows after the central bank surprised economists by cutting interest rates to record lows and warned that the high exchange rate is continuing to act as a brake on growth.
The Reserve Bank of Australia defied most analysts by lowering its benchmark cash rate a quarter of a percentage point to 2.75 per cent, its seventh cut since November 2011 to offset a slowing mining sector and stubbornly strong Australian dollar.
In the statement accompanying its decision, the RBA described the Aussie dollar's strength as "unusual" given falls in both export prices for bulk commodities such as coal and interest rates over the past 18 months. The Aussie remains above parity against the greenback and is at historical highs versus the yen and euro too.
Currency traders immediately sold the Aussie after the RBA's move. It fell to a low of $US1.0181 from $US1.0234 and further selling is expected before hitting support around the lows struck in March at $US1.0115, traders said. Resistance is now pegged at $US1.02.
"Parity is a possibility," said Andrew Salter, currency strategist at ANZ Bank in Sydney. "But it's hard to make the case for a materially lower Australian dollar given what's happening with liquidity conditions around the world."
Traders said although another wave of selling is likely, support will soon kick in. Relatively high interest rates in Australia compared with other major advanced economies such as the U.S. and Japan are expected to continue luring capital into the country.
And robust trade data, released earlier today, showing that Australia returned its first surplus in March since December 2011 helped by a surge in exports of coal and iron ore as a key support for the Aussie.
The surplus of $307 million compared with a downwardly revised deficit of $111m in February - economists had expected a flat outcome for the month.
"All the signs are that commodity demand is still solid," said Barclays Economist Kieran Davies.
That robust export performance coupled with tentative evidence that the world economy is again starting to pick up, with new highs for equities markets and signs of improving conditions in China, Australia's biggest trading partner, should ensure the Aussie dollar escapes a sharp correction lower, said Westpac Strategist Sean Callow.
"It's not as though the world is presenting an incredibly bearish vibe just now," he said. "The RBA cut is not enough to punch us below $US1.0100."
