Catching the FX markets flat footed, the Reserve Bank of Australia sprung a surprise on traders with its announcement that it had decided to lower interest rates, cutting the cash rate to 2.25% in an effort to provide a boost to the lackluster economy. Australia, as a commodity-driven economy, is reliant on the growth of its export destinations, specifically China and the Pacific Rim; given the downtrend in growth there, it’s clear that the RBA felt it necessary to provide stimulus at this point in time.
As reported at 8:57 am (GMT) in London, the AUD/USD traded at a 6-year trough at $0.7635, a loss of more than 2% while the NZD/USD also dipped to $0.7185, a loss of 1.5% and the lowest level seen in nearly four years. Analysts say that the RBA has historically made a series of interest rates move so expectations are high that the central bank could consider additional rate cuts in the near future if this easing effort fails to provide an economic lift.
FX Players look to RBA Policy Statement
Market players will get a better feel for the RBA’s thinking after Wednesday when the head of the central bank, Graeme Wheeler, will speak after the RBA’s policy statement is delivered. If the Aussie central banker takes a more dovish tone, analysts believe that that could have repercussions in nearby New Zealand. Many feel that the Reserve Bank of New Zealand could be compelled to take a step back from its own more hawkish stance, possibly taking any future rate hike off the table.