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FOREX-Aussie tumbles on talk of more interest rate cuts
May 24, 2016 / 7:51 AM / a year ago

FOREX-Aussie tumbles on talk of more interest rate cuts

* Australian dollar hits 2-1/2-month

* Dollar index climbs on hawkish Fed comments

* Other commodity currencies fall on lower oil prices

By Jemima Kelly

LONDON, May 24 (Reuters) - The Australian dollar fell to a 2-1/2-month low on Tuesday on talk that the Reserve Bank of Australia (RBA) might cut interest rates again this year, after its governor said the central bank was committed to inflation-targeting policy.

Glenn Stevens was speaking publicly for the first time since the RBA’s policy review this month, when it cut the cash rate by a quarter point to a record low 1.75 percent, citing surprisingly low inflation.

That rate cut sent the Aussie dollar plunging by more than 2 percent in a day - its heftiest falls in 4-1/2 years - and prompted speculation that policy might be eased again.

On Tuesday, the Aussie fell 0.8 percent to $0.7162, its lowest since early March, also dragged down by a fall in oil prices that sapped demand for other commodity currencies too.

“The comments overnight have highlighted a vulnerability that was already existing - we had the rate cut a few weeks ago (and) the market has been toying with the idea of another move,” Rabobank currency stragegist, Jane Foley, said.

“What this was today was a prod at the Australian dollar to try to push it lower. If it wasn’t pushing lower, the chances of an interest rate cut become more likely.”

New Zealand’s dollar, which tends to follow the Aussie’s movements, also fell 0.7 percent to a two-month low of $0.6706 , while oil exporter Canada’s dollar hit a seven-week low.

The U.S. dollar was stronger across the board, gaining 0.2 percent against a basket of major currencies at 95.433, following hawkish comments late on Monday from Federal Reserve officials. That took the greenback close to a last week’s two-month high of 95.502.

San Francisco Fed President John Williams said the central bank was on track to hike interest rates in June or July despite risks such as Britain’s referendum on European Union membership, and will keep hiking next year given U.S. economic strength.

“The dollar index has stood tall overall amid a significant rise in the two-year U.S. Treasury yield. Trades preparing for a potential Fed rate hike in June are likely to continue,” IG Securities FX analyst, Junichi Ishikawa, said. (Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Louise Ireland)

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