Currency Analyst since 2010

The RBA goes on with easing bias

As expected, the Reserve Bank of Australia kept the benchmark cash rate at 2.75%. AUD/USD rose to $0.9790 yesterday, but returned back below $0.9700 today. Aussie was affected by the central bank’s statement: the RBA said that the nation’s inflation outlook provides some scope for further monetary easing and that the currency is strong.

According to data on overnight-index swaps, traders see an about 80% chance that the RBA will lower borrowing costs by at least 25 bps by November.

Although AUD/USD lost about 4% since the RBA’s May meeting, central bank’s Governor Glenn Stevens said that Aussie “remains high considering the decline in export prices that has taken place over the past year and a half.”

The currency averaged about $1.03 in the past 2 years, compared with about $0.73 in the prior two decades. Demand for AUD was spurred by Australian resource investment boom and near-zero interest rates in the US and Japan. Now the situation in the green continent is far from bright. The mining boom is over. Ford Motor Co. decided to shut down its local plants that led to 1.2K job losses. The OECD cut Australia’s 2013 economic growth forecast from 3% to 2.6%. Elevated AUD is making things harder, so the RBA has a reason to continue its easing stance.

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