Australia breaks central bank ranks

The RBA's move disappointed investors in Australia, where it again takes more than two Aussie dollars to buy a U.S. dollar

By CNN's Alex Frew McMillan in Hong Kong

SYDNEY, Australia (CNN) -- The central Reserve Bank of Australia surprised investors by leaving interest rates unchanged Tuesday.

That disappointed the market, which had been hoping the RBA would follow most other central banks around the world.

Banks have stepped in with rate cuts to spark interest in stocks and shore up consumer confidence after the terrorist attacks in the United States.

"You would have expected the RBA would have joined in what I maintain would have been an opportunity to maintain a very coordinated response," said Robert Rennie, senior currency strategist at Westpac Banking.

But the RBA, which joined the Bank of England in leaving rates untouched, may still act.

"The market is still thinking a cut is still possible in the next couple of days," Rennie said.

A rate cut rush

The U.S. Federal Reserve slashed rates by half a percentage point on Monday, as American stock markets reopened with heavy losses after last Tuesday's attacks.

That left the U.S. official rate at 3 percent -- the lowest level since 1992. The European Central Bank followed suit with a surprise half-point cut of its own on Monday.

The Bank of Canada matched the U.S. cut, too, an hour after the Fed's move. The Swiss National Bank cut after Europe did.

The Bank of Japan started a two-day meeting Tuesday under pressure to ease monetary policy.

Taiwan's central bank cut rates half a point on Tuesday, effective Wednesday. And the Philippines is considering a rate cut as it called an emergency meeting Tuesday of its policy board.

Both the RBA and the BOE may have been surprised by the coordinated nature of the cuts around the world and want to see how they pan out.

Interest rate cuts make borrowing cheaper, reducing the cost of mortgages, credit-card debt and the like. They also make investment options like stocks more attractive, because they promise greater gains than bank deposits.

Half-point cut still priced in for RBA

With the world facing a severe recession threat after the attacks, investors in Australia had hoped for a rate cut.

"At every level this [disaster] is seen as being disruptive for Australia," Rennie said. "Goodness only knows what the effect of last week will have on global trade and therefore on Australia's markets."

But the RBA last cut just two weeks ago. It lowered rates September 5 by a quarter point, chopping the cash rate to 4.75 percent.

RBA Governor Ian Macfarlane was due to give a rare speech later Tuesday, at the University of Tasmania. Australia watchers are keen to hear what comes out of the question and answer session that is scheduled to follow his address.

Markets have already priced in a half-point rate cut later this year. Economists say rates may well stand at 4.0 percent by the end of the year.

The RBA's move -- or lack of one -- did little to help its weakening currency.

Indian rupee near record weak point

The Australian dollar was trading just off a five-month weak point against the U.S. dollar on Tuesday, with the Aussie at 49.60 cents to the greenback.

Once again, the Australian currency has fallen below two to the dollar, despite decent trade figures and a recent slump in the U.S. currency.

The Australian dollar's record low against the greenback is 47.75 cents, which it reached on April 2.

Commonwealth Securities chief economist Craig James said in a commentary Tuesday that while Australia's economic and financial credentials were solid, "headline stories of domestic corporate collapses and global recession are undermining support for the Australian dollar".

He said that given the deterioration in sentiment towards the currency, the Australian dollar was at risk of testing its record low.

The New Zealand dollar, which typically moves in tandem with the Aussie, fell below the U.S. 41 cents level Tuesday before recovering to 41.10.

In India, the rupee closed at a record weak point on Monday against the U.S. dollar, at 47.83 rupees. It was just off that at 47.90 rupees on Tuesday.

Conflicting trends have hit Asia-Pacific currencies in recent weeks, with the Aussie losing ground despite relatively strong trade figures, and the Singapore dollar gaining despite flagging exports.

Markets seem to be ignoring fundamentals and focusing mainly on moving away from risk, Rennie said.