The Australian dollar slumped today as the Reserve Bank of Australia surprised Forex market participants by cutting its interest rates and suggesting that further rate cuts are possible.
The RBA cut its main interest rate by 25 basis points to the record low 2.75 percent today. There was some negative fundamental data recently, but analysts did not expect such move nevertheless. The bank said in the accompanying statement:
The Board has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand. At today’s meeting the Board decided to use some of that scope. It judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target.
It looks like “scope to ease further” remains and the central bank may reduce borrowing costs yet again in the future. Such prospects hurt the Australian currency, sending it down against other majors.
AUD/USD dropped from 1.0251 to 1.0166 as of 13:11 GMT, trading near the lowest level since October 8, 2012. EUR/AUD jumped from 1.2750 to 1.2902 — the highest since February 21. AUD/JPY tumbled from 101.80 to 100.85.
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