AUD Slips in Aggressive Easing

By: Barbara Zigah

The Reserve Bank of Australian was widely expected to cut interest rates at their policy meeting today but surprised markets with a 50 basis points reduction rather than the expected 25 points. The RBA governor, Glenn Stevens, said that the RBA outlook for inflation could be lower than anticipated over the next few years, essentially suggesting that more easing cold be forthcoming if necessary. The AUD/USD pair dropped 50 pips against the U.S. Dollar immediately after the announcement, and is now trading nearly 1% lower at 1.0326 as reported at 2:35 p.m. (JST) in Tokyo. Against the safe haven Japanese Yen, the Aussie Dollar lost more than 1% of its value and the AUD/JPY pair is now trading at 82.300 Yen.

At 4.00%, the RBA’s cash rate is the lowest it has been in well more than two years, but remains among the highest of all developed nations; comparatively, the rate in the U.S. is 0.25% and in the E.U. is 0.50%. For that reason, markets are already pricing in a second rate cut within the next 12 months, with expectations that the rate could drop by at least another 50 basis points if not more.