Record Shorts Backfire in Australia

RBA signals that two years of interest-rate cuts, and push toward weaker currency, are at an end.

Traders who placed record bets against the Australian dollar are ruing their timing, after the central bank signaled two years of interest-rate cuts are at an end and stepped back from efforts to talk down the currency.

The Aussie traded at 89.10 U.S. cents as of 11:20 a.m. in Sydney. It jumped 2 percent yesterday, the biggest one-day gain since June, paring its past year’s drop to 14 percent. Reserve Bank (RBA) Governor Glenn Stevens left the benchmark borrowing cost at a record-low 2.5 percent, favored stable rates, and omitted mention of an “uncomfortably high” exchange rate that was in the previous two policy statements.

Commonwealth Bank of Australia and Macquarie Group Ltd. are among lenders predicting the central bank’s statement on monetary policy due Feb. 7 will contain an upward revision to inflation forecasts.

“On present indications, the most prudent course is likely to be a period of stability in interest rates,” Stevens said in a statement accompanying yesterday’s decision. “The exchange rate has declined further, which, if sustained, will assist in achieving balanced growth in the economy.”

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