The Reserve Bank of Australia cut interest rates today. Yet the Australian dollar did not react to the news in the expected manner, rising after the event, not falling.
The RBA cut its main interest rate by 25 basis points to 1%. Such decision was largely priced in by markets. Furthermore, the central bank signaled that more cuts are possible:
The Board will continue to monitor developments in the labour market closely and adjust monetary policy if needed to support sustainable growth in the economy and the achievement of the inflation target over time.
So why the Aussie reacted so strangely to the news? Market analysts had a couple of theories.
Some speculated that the statement did not sound as dovish as was expected. Indeed, the RBA said:
The outlook for the global economy remains reasonable.
The outlook for the domestic economy was not bad either:
The central scenario for the Australian economy remains reasonable, with growth around trend expected.
Other specialists argued that interest rate cuts have been already priced in, therefore they should have a limited impact on the currency.
Whatever the case, the Aussie managed to gain on all major currencies today, though it was unable to erase yesterday’s losses against all of them.
AUD/USD rose from 0.6964 to 0.6990 as of 14:15 GMT today. EUR/AUD declined from 1.6200 to 1.6153. AUD/CHF jumped from 0.6877 to 0.6909.
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