The Australian dollar inched lower against its US counterpart on Monday, hobbled by rising interest rates in major trade partner India, and fresh concerns over sovereign debt in Europe. Still, the Aussie remained strong against the euro and sterling and climbed to 71.6 on its trade weighted index to threaten highs last hit in January and November.
The Aussie was stuck at $0.9143 in late domestic trade, after losing three-quarters of a cent on Friday. Traders reported good support at $0.9130 and $0.9095, with resistance around $0.9170 and last week's $0.9250 high. Like other commodity-exposed currencies, the Aussie had come under pressure on Friday after India surprised by raising interest rates.
Strong demand from India and China has been the driver of rising commodity prices so anything that threatens to cool those economies tends to hurt sentiment. As a result, most Asian share markets slipped on Monday and a range of commodities from oil to gold and copper declined. Yet many analysts argue the Reserve Bank of India is moving proactively to sustain recovery, just like China's authorities.
"Markets over-reacted with a "risk off" day," said Annette Beacher, a senior strategist at TD Securities. "But the bottom line is that lifting the cash rate is part of a strategy to manage an economic upturn, not choke it off." Investor sentiment did seem to improve as Monday's session wore on, helping the Aussie steady above $0.9130 and 82.20 yen. It also extended gains on sterling to 0.6111 pounds, not far from 25-year highs, on concerns the UK could succumb to a double dip recession.
And the euro slipped to near decade lows at A$1.4773 as concerns grew that Greece would not get a concrete pledge of support from other euro zone members. Reports suggested Germany was against a pledge of aid and would block any offer of such at a summit of leaders on March 25-26. At home, the Aussie should remain underpinned by expectations of more interest rate rises with the market fully priced for a move to 4.25 percent by June.
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