The Australian dollar did not change Monday’s direction on Tuesday, continuing to fall against other major currencies. The most important factors driving the currency were the dovish monetary policy outlook and mixed macroeconomic data in Australia’s biggest trading partner, China.
The Reserve Bank of Australia released today minutes of its monetary policy meeting on October 1. At the meeting, the RBA cut its main interest rate by 25 basis points to the new historic low of 0.75%. The notes revealed that there were arguments in favor of keeping rates unchanged, like “the possibility that policy stimulus might be less effective than past experience suggests” and “the housing market and other asset prices might be overly inflated by lower interest rates”. Ultimately though, policymakers decided that a cut is warranted:
Members concluded that these various factors did not outweigh the case for a further easing of monetary policy at the present meeting.
Policymakers also acknowledged the global trend of monetary easing and the impact it has on Australia:
Members also noted the trend to lower interest rates globally and the effect this was having on the Australian economy and inflation outcomes.
In the end, the minutes predicted that monetary policy will remain extremely accommodative in the foreseeable future and policymakers may even perform additional easing if need be:
Members judged it reasonable to expect that an extended period of low interest rates would be required in Australia to reach full employment and achieve the inflation target. The Board would continue to monitor developments, including in the labour market, and was prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.
Despite the clearly dovish stance of the RBA, some market analysts thought that the minutes were not particularly bad and maybe even supportive to the Aussie as they did not mention the need to cut interest rates in the immediate future.
Going forward, traders will watch for an employment report due for release on Thursday. Analysts predicted that it will show decent growth in September, though not nearly as big as in the previous month.
As for China’s data, annual consumer inflation accelerated to 3% in September from 2.8% in the previous month, beating expectations, but producer prices fell 1.2% last month from a year ago, in line with forecasts.
AUD/USD dropped from 0.6774 to 0.6746 as of 13:50 GMT today. EUR/AUD gained from 1.6266 to 1.6298. AUD/JPY fell from 73.42 to 73.14.
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