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AUSUSD REGAINS MOMENTUM ON INTEREST RATE HALT

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AUSUSD REGAINS MOMENTUM ON INTEREST RATE HALT

March 3 2015, 8.15am GMT

STOCK.com

The RBA announced that the key rate will not increase this month; currency reverses up 0.6%.

The gain for the Aussie may be small but in terms of the country’s economic direction, the reversal is significant. Last month the Reserve Bank of Australia governor Glenn Stevens ordered a surprise reduction in the rate of 25 basis points; this month Stevens maintained that rate for the second month running at 2.25% though many analysts expected the rate to reduce further to prop up the economy, which has suffered from commodity slumps, unemployment and inflation.

In December 2014, falling commodity prices were blamed for the Australian government’s forecast of an expanding budget deficit to reach AUD40.4B from estimates of AUD29.8B. Then on January 5 2015, the AIG Manufacturing index of 200 main manufactures demonstrated the slowing of Australian growth by falling from 50.1 to below contraction levels of 46.9. Just a day later, exports beat imports as figures for Australia’s trade balance at -0.925B were better than previous -0.877B but did not reach expectations of -1.590B.

The slowing of growth continued in January with data released on home loans in Australia down -0.7%, from a forecast of 2.0% and previous of 0.2%; at that point the AUDUSD fell 0.85%. The tide started to turn for the Aussie when healthy employment reports on January 15 2015 boosted a rally on the AUDUSD. However the rally took the Aussie to an overvalued status and on 3 February the Reserve Bank of Australia cut the country’s key rate to 2.25% in a surprise move. The record low interest rate for Australia, taken down 25 basis points from 2.5% to 2.25%, led to a mini-crash in the Australian dollar and made stocks soar.

On Tuesday 3 March the new announcement was due from the central bank on the March key rate. The rate was maintained at the lower figure and some reversal against the U.S dollar was achieved. At the same time stocks reversed from their upward movement with the SYDNEY200 [S&P/ASX 200] falling 0.5% to lows of 5881.50.

Governor Stevens did however hold the door open to future interest rate reductions saying, “At today’s meeting the Board judged that, having eased monetary policy at the previous meeting, it was appropriate to hold interest rates steady for the time being. Further easing of policy may be appropriate over the period ahead.”

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