RBA cuts rate but refrains from providing clearer easing bias - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the Australian dollar is benefitting from the pick-up in carry demand which is helping to limit the negative impact overnight from the RBA’s decision to lower their key policy rate by 0.25 percentage point to 1.50%.

Key Quotes

“Nevertheless the resilience of the Australian dollar is still surprising given that the RBA’s policy decision was judged as a close call ahead of the meeting and far from fully priced in the interest rate market. The external environment is clearly providing more support than expected with the Australian dollar also benefitting from the recent rebound in the price of iron ore which is proving firmer foundations. Investor concerns over slowing growth in China have diminished in the near-term helping to ease downward pressure on the Aussie.

The RBA statement acknowledged that recent domestic data had confirmed that inflation remains quite low and overall economic growth continued at a moderate pace. The RBA also judged that the likelihood of lower interest rates exacerbating risks to the housing market has diminished. As a result, the RBA “judged that the prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved” by easing monetary policy further at today’s meeting. The RBA did not provide a clear signal that further easing is likely. Nevertheless, the market is likely to lean toward pricing in a further rate cut in the year ahead. However, for the Australian dollar to weaken more materially it will likely more volatile financial market conditions and renewed concerns over slowing growth in China.”