Aussie Rallies as RBA Cuts 25bp Not 50bp

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As expected the RBA cut its benchmark rate by 25bp to 3.00% ignoring speculation that the central bank may opt for a more dramatic 50bp move and as a result the Australian dollar rallied rising to 1.0450 in the aftermath of the rate decision. The RBA followed its gradualist path, noting that, ‘‘Global growth is forecast to be a little below average for a time. Risks to the outlook are still seen to be on the downside, largely as a result of the situation in Europe, though the uncertainty over the course of US fiscal policy is also weighing on sentiment at present. Recent data suggest that the US economy is recording moderate growth and that growth in China has stabilised. Around Asia generally, growth has been dampened by the more moderate Chinese expansion and the weakness in Europe.”

The central bank has now taken rates to Lehman crisis lows but as several analysts have pointed out monetary conditions in Australia are not as accommodative as may seem with banks widening their spread on variable rate mortgages. Mortgages reached a low of 5.1% in 2009, whereas now they are expected to fall to about 5.65% after today’s cut.

In the end the central bank left the market with a decidedly neutral bias noting that, ‘‘Over the past year, monetary policy has become more accommodative. There are signs of easier conditions starting to have some of the expected effects, though the exchange rate remains higher than might have been expected, given the observed decline in export prices and the weaker global outlook. While the full effects of earlier measures are yet to be observed, the Board judged at today’s meeting that a further easing in the stance of monetary policy was appropriate now. This will help to foster sustainable growth in demand and inflation outcomes consistent with the target over time.’’

The RBA will not not meet until February and likely make an keep rates stationary for the foreseeable future allowing the rate cut effects to take place. It would only grow more accommodative if global growth suddenly showed signs of further weakening or if the internal Australian data deteriorated markedly. Although the yield on the Aussie continues to contract the pair still carries the highest rate in the industrialized world and as such will likely remain bid, although its rallies will be limited in scope with 1.05000 level remaining key resistance for now.

Boris Schlossberg
Managing Director

One thought on “Aussie Rallies as RBA Cuts 25bp Not 50bp”

  1. Hi Mr, I want to know the opinion of an expert on the markets like you, I don´t know how to start with this but I am very confuse about RBA rate cut decision, everyone knew that if they (australian central bank) cut the rate their currency would fall, but in fact the movement was completely different the aud/usd went up, I hope you can help me to find an answer to this interrogative I have many theories but I don´t, which could be the good one, one of them is the central bank bought a lot of their currency to controlb the loses but maybe the didnt think they bought a lot, second there was the posibility aud central bank wont cut rates so traders and some other institutions put orders and position on a buy way, but why if we have seen in the last to realeses the natural and common sense on the markets why at this point all seems to be so confuse cut rate=currency go down, It´s imposible to control forex market it´s just too big to be controled, I though that, but ,,,, I would like yo help me with this Mr and thanks for your help

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