What The RBA Rate Means For the Australian Dollar
In an unsurprising fashion, Reserve Bank of Australia Governor Glenn Stevens announced a 25 basis point rate cut for the country’s benchmark interest rates. The move has pushed the benchmark rate lower from 3.75% to 3.5% – lending a slightly bearish undertone to the Australian dollar. However, the move is likely to be one of the last for the central bank for a bit, which should give the underlying currency some impetus to move off of support at 0.9700 for the moment.
Acknowledging that the European financial crisis continues to loom over the global economy and current market conditions, Stevens noted that “the ongoing trend is unclear” as the Chinese economy continues to show signs of slowing. In addition, the pace of inflation has left the central bank some room for a further “accommodative stance of monetary policy” as consumption rates have remained stagnant on consumer’s defensive stances.
Nonetheless, export and unemployment rates continue to outshine their more industrialized peers. A healthy pipeline of exporting centered projects worth half a billion US dollars and unemployment rate of around 5% are still buoying future growth prospects in the Pacific economy. Not to mention that rates of inflation still remain well within the central bank’s target rate of 2-3%.
So, one can now see that the recent spate of rate reductions were in response to slowing growth conditions. However, Governor Stevens is unlikely to push the envelope when it comes to aggressive cuts in monetary policy – fearing that it could fan massive inflationary pressures, if and when regional growth stabilizes. The notion should give Australian dollar buyers some hope, at least against the US dollar, when it comes to a potential move higher in the short term.
More on the Australian dollar - AUD/USD Technical Outlook – May 29th