Swedish crown hits 3-1/2 year low after steep rate cut

[July 03, 2014] By Anirban Nag
 

LONDON (Reuters) - The Swedish crown fell to a 3-1/2-year low against the euro on Thursday as the central bank cut rates more than expected, while the Australian dollar lost ground after the head of its central bank warned the currency could weaken.

The 50-basis-point-cut by Stockholm's Riksbank was double what was expected and kept the market focus on the crown in an otherwise quiet session, with investors awaiting U.S. jobs data and the outcome of a European Central Bank policy meeting.

Strong figures from payrolls processor ADP on Wednesday supported the view that the U.S. economy has bounced back after a first-quarter slump.

That helped drive benchmark U.S. Treasury yields <US10YT=RR> to their highest in over a week at 2.63 percent on Wednesday, which in turned supported the dollar against a basket of major currencies <.DXY>.

U.S. yields could rise further if Thursday's jobs data also beats expectations. <ECONUS>.

The euro was flat against the dollar at $1.3660 <EUR=> with investors cautious before European Central Bank President Mario Draghi's post-meeting news conference, which is due to start just as the U.S. jobs numbers are released.
 

After last month cutting interest rates to record lows and revealing a 400 billion-euro loan programme, the ECB is not expected to take fresh policy action this time.

"Yet with inflation so low at 0.5 percent, year-on-year, we find it unlikely President Draghi will be happy to say nothing and allow euro/dollar to stage another assault on $1.40 again," said Chris Turner, head of currency strategy at ING.

"Short-term rate spreads suggest euro/dollar should be trading closer to $1.34 than $1.37."

The dollar was up 0.15 percent against the yen at 101.92 yen <JPY=>.

SWEDISH CROWN, AUSSIE STUNG

The Riksbank surprised a market that was expecting only a 25 bps cut in the repo rate, and the Swedish crown fell to its lowest since November 2010 against the euro.

The euro was up 2 percent, rising to 9.39 crowns, from around 9.1950 crowns before the rate decision.
 

Another big mover was the Australian dollar which extended losses to trade 0.8 percent lower $0.9370.

It retreated further from the eight-month peak of $0.9505 set on Tuesday after Reserve Bank of Australia Governor Glenn Stevens warned investors were underestimating the risk of a significant fall in the currency.

A weak reading on Australian retail sales added to the already soft tone of the Aussie dollar, which had retreated on Wednesday on profit-taking in the wake of disappointing trade data.

The Aussie's drop below $0.9400 triggered stop-loss selling, said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.

"Governor Stevens timed his talking down of the Australian dollar perfectly to coincide with a soft market," Halley said.

While the Aussie may find some support at levels around $0.9370 and $0.9355, a drop to $0.9300 was now on the cards, he said.

(This refiled version of story drops extraneous word 'chief' from the headline).

(Additional reporting Masayuki Kitano in SINGAPORE, editing by John Stonestreet)

[© 2014 Thomson Reuters. All rights reserved.]

Copyright 2014 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.