Can Australian Dollar Drop Further?

The inflation report that showed a slowing inflation weakened the Australian dollar. But will the currency extend its drop? That’s a definite possibility in case the central bank would cut the interest rate next month.
The inflation rose 0.6 percent in the third quarter, slower than in the third quarter (0.9 percent), but such slowdown was expected. The trimmed mean inflation (it’s similar to core inflation in other countries) advanced only 0.3 percent, more than two times slower compared to forecasts (0.7 percent).
The slower inflation gives an incentive for the Reserve Bank of Australia to decrease its borrowing costs. The speculation about a real estate bubble in Australia further reinforces bets on lower rates. The main interest rate in Australia is at 4.75 percent and that’s very high compared to the rates in developed nations, while current global economic conditions aren’t supportive for high lending rates.
The Aussie wasn’t behaving badly, considering all the negative factors. The currency was falling for the most part of the session, but in the late trading it trimmed the losses.
RBA Deputy Governor Ric Battellino was speaking on October 27 about all the economic problems in Australia and abroad, but the end of his speech was rather optimistic:

At this stage the Bank’s central scenario is that global GDP growth will be broadly in line with its long-run average over the period ahead. That would create a reasonably benign environment for the Australian economy.

AUD/USD was at 1.0392 today as of 23:28 GMT, following the slump from 1.0426 to 1.0321. EUR/AUD surged from 1.3332 to 1.3466 before trading at 1.3347, while AUD/JPY traded near 79.18, recovering from the drop to 78.36 from the opening price of 79.33.

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