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 Tuesday 03 May 2016

PM Bulletin: Aussie dollar slumps

 

 

The Australian dollar fell sharply overnight. This followed the Reserve Bank of Australia’s (RBA) decision to cut its headline Cash Rate by 25 basis points to 1.75%.

But it is worth noting that the currency had already lost a lot of ground following last week’s disappointing inflation reading.  On Wednesday Australian CPI for the first quarter fell 0.2%. This was well below the +0.4% recorded for the fourth quarter of 2015 as well as lower than the consensus expectation of an increase of 0.3%. So it isn’t just Japan and the Euro zone that are battling deflationary pressures.

Australia has had a particularly rough time over the past year or so thanks to the sell-off in commodities and the related slowdown in China. Concerning the latter, no doubt the RBA were encouraged to cut rates for the first time in a year after China’s Manufacturing and non-Manufacturing PMIs came in below expectations this weekend. Not only that but the Caixin Manufacturing PMI released overnight came in under 50 (indicating contraction in the sector) for the fourteenth consecutive month.

The RBA had done pretty well over the past year in steering its currency lower while keeping its Cash Rate unchanged at 2% - one of the highest interest rates amongst developed economies. The central bank has had to be careful about loosening monetary policy due to the strength of its housing market which some analysts feel is in bubble territory – particularly in major urban areas. But the AUDUSD has strengthened appreciably since mid-January. The RBA will be hoping that it will turn lower once again – particularly if the market expectation is that they could cut again later this summer.

Here’s a four-hour chart with Fib retracement from last year’s high to the January low. As you can see the AUDUSD is currently hovering around the 50% retracement of the move:
 




  
Unsurprisingly, the Australian dollar is also having a bad time against the Japanese yen:






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Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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