Tuesday, May 1, 2012

AUDUSD Sinks on RBA Cut

The Reserve Bank of Australia laid an egg on the Australian Dollar this morning after it surprised Forex traders and lowered its interest rates at its current MPC Meeting.  The 0.25% cut to 3.75% marks two months in a row of interest rate cuts and signals a message to traders that the RBA’s global economic outlook isn’t that rosy.  Even as the US continues to be humming along with its slow but steady growth, and the UK’s Bank of England signaled possible monetary tightening,  we are seeing BRIC countries continually warning about the future.

Business Insider published a great article about the contrast on global opinion last month titled Brazil Did A Huge Rate Cut, And Suddenly The Whole World's Been Turned Upside Down.  A quick excerpt:
The big monetary policy news of the evening: Brazil's central bank has cut interest rates from 9.75% to 9.00%. That was somewhat expected, but the real news according to Reuters is the dovish tone taken by the bank, implying more rate cuts to come.
Let's take a moment to pause and reflect on the state of global monetary policy.
The other big rate cutter is India, which did a 50 basis point cut earlier this week. Read More
In a way it makes perfect sense that the RBA isn’t taking any chances as Australia’s fortunes are more in tune with the large commodity purchasing BRIC countries.  Looking ahead, today’s rate cut is expected to add further pressure on the Aussie, as without the prospects of a high interest rate, Forex traders could shun the currency with their Carry Trade positions.  On the Aussies weakness, two currencies that could see increase demand are the New Zealand and Canadian dollar.  Each country’s central bank has been involved in interest rate hikes recently and signaled that 2012 could see further rises in rates.

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