Fundamentals looked extremely grim to the Australian dollar today. An interest rate cut by Australia’s central bank, unfavorable domestic economic reports, persisting risk aversion on markets — all those factors should have driven the currency down. But instead, the Aussie jumped against almost all of its major rivals, except for the Japanese yen.
The Reserve Bank of Australia cut its main interest rate by 25 basis points to 0.5% at Tuesday’s monetary policy meeting. Such a decision was widely expected by markets considering the threat that the coronavirus poses for economic growth. Indeed, the central bank’s statement confirmed that the epidemic was the driving force behind the cut:
The Board took this decision to support the economy as it responds to the global coronavirus outbreak.
The statement elaborated further:
The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target. The Board therefore judged that it was appropriate to ease monetary policy further to provide additional support to employment and economic activity. It will continue to monitor developments closely and to assess the implications of the coronavirus for the economy. The Board is prepared to ease monetary policy further to support the Australian economy.
As for macroeconomic releases, the Australian Bureau of Statistics reported that the number of building permits sank by 15.3% in January from December instead of rising by 1.1% as analysts had predicted. The current account surplus narrowed from A$6.5 billion in the September quarter of 2019 (revised down from A$7.9 billion) to A$1.0 billion in the December quarter, below the median forecast of A$2.3 billion.
Yet despite all the negative factors, the Australian dollar was extremely strong today. One of the possible explanations for such a phenomenon is that the majority of the bad news was priced in, lessening the negative impact on the currency.
AUD/USD climbed from 0.6537 to 0.6599 as of 18:52 GMT today. EUR/AUD declined from 1.7024 to 1.6948. AUD/JPY went down from 70.82 to 70.60.
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