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    RBA cut rates to new historic low of 1.75%

    The RBA finally pulled the trigger on a rate cut today to its lowest rate on record, sending the Australian Dollar tumbling across the board. 





    Markets had been pricing in a rate cut having seen trimmed mean inflation fall unexpectedly to 1.7% (below the 2% threshold) last week. Thise who took the bet on early would have been rewarded today as AUDUSD shaed over 1.5% since market open following the historic cash rate decision. 

    Multiple references are made in the statement regarding low inflation, low expectations of and finally their forecast of such measure being too high. Ultimately it was the lack of expected and realised inflation that saw RBA take the 25bps cut and a weaken Australian Dollar as a result.




    Moving to the end of the statement, to me it suggests there are no further cuts planned as RBA feel today's decision should see inflation return to their previous expectations. Of course external factors will also play their part with the domestic economy requiring Asian trade partners (with China in particular) regaining momentum and FED continuing to hike. If not, then we will have to revisit the notion of further cuts. 



    RBA highlight 'net service exports' as a key metric for growth
    I highlighted the need to monitor net service exports over the coming months after RBA pointed out it accounts for 0.5% of GDP. A higher exchange rate will weigh on this component of GDP if it remains higher for longer but with today’s rate cut that seems of less importance now. But as time goes on and we see the effects of today's rate cut works its way through the economy then this is a metric which could become more useful again in future. 





    - The Dollar wasted no time in reversing gains seen in the lead-up to the announcement but, at time of writing, the Aussie is holding above the 75c handle.
    - AUDJPY has plummeted to a 9-week low and looks poised to extend losses throughout the session. 
    - AUDNZD hot the 1.08 target suggested in the previous analysis (after the inflation read)





    AUDUSD now sits above the Jan '16 trendline, which will no doubt be closely watched to see if 0.7546 support hold. This level could make or break sentiment in the weeks ahead but there are two things we need to consider becoming overly bearish.

    1: The Greenback is having a mare, which is helping to support AUDUSD
    2: The easing bias has been removed from the RBA statement

    This may make any downside move limited at best, so we may have to prepare for some choppy sideways trading as we see a more divergent theme play out between US and AU. 



     


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