The Australian dollar tumbled today after a central bank official damped expectations of an interest rate hike.
Earlier this week, the policy minutes released by the Reserve Bank of Australia boosted the Aussie, signaling that Australian policy makers think that the neutral level for interest rates is far above the current one. That led to speculations that the central bank will hike rates in the near future. Yet RBA deputy governor Guy Debelle damped such expectations, saying that markets should not read to much into those words:
No significance should be read into the fact the neutral rate was discussed at this particular meeting. Most meetings, the board allocates some time to discussing a policy-relevant issue in more detail, and on this occasion it was the neutral rate.
Furthermore, he stated:
Just as the policy rate in Australia did not need to decline to the very low levels seen in other parts of the world, the fact that other central banks increase their policy rates does not automatically mean that the policy rate here needs to increase.
The Australian central bank was sending confusing statements to markets, leading to swings of Australia’s currency back and forth between gains and losses. RBA’s neutral stance in its policy statement earlier this month hurt the currency, the mention of the neutral level for interest rates helped the Aussie, and now the currency is under pressure again.
AUD/USD dropped from 0.7957 to 0.7917 as of 18:10 GMT today, reaching the low of 0.7874 intraday. AUD/JPY sank 1.2% from 89.04 to 87.96. AUD/CHF slumped 1.1% from 0.7566 to 0.7481.
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