A currency ETF pegged to the Australian dollar has remained firm despite another interest-rate cut by the Reserve Bank of Australia on speculation the country’s central bank may take a break from monetary stimulus.
CurrencyShares Australian Dollar Trust (NYSEArca: FXA) is up about 5% year to date. The currency ETF tracks the movement of the Aussie dollar versus the U.S. greenback and tends to be sensitive to commodity prices and emerging markets.
“Because of the Australian economy’s heavy reliance on mineral wealth, its currency often rises and falls with commodities. The Australian dollar has maintained a strong correlation with diversified commodities prices,” Morningstar says in a profile of FXA.
The Reserve Bank of Australia on Tuesday announced a reduction to the cash rate by 25 basis points to 3%. The rate cut was expected. [Currency ETF Chart of the Day: Australian Dollar]
“The Australian dollar stole the currency market spotlight overnight, rallying on signs the country’s central bank may pause its easing cycle,” The Australian reported Wednesday. Traders pushed the Australian dollar higher due to hints from RBA Governor Glenn Stevens that policy may be on hold for a while going forward, it added.
Still, Reserve Bank Deputy Governor Philip Lowe said the Australian dollar is “uncomfortably high,” according to a Bloomberg News report. The RBA lowered rates six times in the past 14 months to 3%, matching a half-century low reached at the height of the 2009 global recession, Bloomberg said.
CurrencyShares Australian Dollar Trust