The Reserve Bank’s decision to keep rates on hold had little effect on the Aussie dollar overnight. The RBA indicated that the AUD was adjusting downward to match the decline in commodity prices. Its positive outlook on the economy sent the AUD as high as $0.7427. But it didn’t last long.
As of 10am AEST this morning, the AUD was back down, trading at $0.7369 against the greenback.
Meanwhile, one Australian dollar is buying $0.6778 euros. The AUD is up by $0.011 against the euro since the decision. The dollar rose slightly against the Japanese yen too, buying 91.68 at 10am AEST.
The RBA was careful about its wording in its official statement this time around. They made no mention of any future rate cuts, which bucks a recent trend. Typically, the RBA indicates what their intentions are going forward. They make references to future economic conditions, and the necessity of further depreciations.
But they omitted any clues this time around. It’s a smart move, considering how little effect any future cut is likely to have. It won’t make much difference to the AUD, and it’ll have even less effect on the economy.
The game plan from here is to wait for the US Fed to start raising rates again. The likelihood of that happening in September rose yesterday. It came on the back of bold comments by the Reserve Bank of Atlanta President Dennis Lockhart. He said that it would take something significant to convince him not to hike rates in September.
The RBA is, of course, pinning their hopes on this. If the US lifts interest rates from near-zero, it’ll keep a lid on the Australian dollar. It’d also force commodity prices down, lowering the AUD again in the process.
That’ll lift the pressure off the RBA to cut rates again. If the AUD comes down with the RBA sitting idle, that suits them perfectly. But it all depends on the US Fed.
At the same time, there’s another school of thought on US interest rates. It’s the one that argues a rate hike isn’t coming until mid-2016 at least.
The RBA is hoping it doesn’t take that long. Otherwise the pressure for a fresh rate cut this year could reach boiling point.
Contributor, Markets and Money
PS: The Reserve Bank will fail to prop up the Aussie economy by pushing for a cheaper dollar. According to Markets and Money’s Greg Canavan, nothing the RBA does will prevent a recession. Greg is one of the leading investment analysts in Australia.
In a free report, ‘Australian Recession 2015: Unavoidable’, Greg reveals why our first recession in 23 years is imminent.
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