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Aussie Falls on RBA Rate Cut Signals

August 5, 2008 at 10:00 by Andriy Moraru

Australian dollarThe Australian dollar declined to its lowest value against the U.S. dollar since July today after the central bank statement said that lower inflation may allow interest rate cuts in the future.

The Australian currency (which is also known by its nickname Aussie) fell for a sixth day in a row against its U.S. counterpart as the Reserve Bank of Australia released its statement today keeping the benchmark interest rate a 7.25 percent and saying that the rate may be decreased in the future to support the contracting economy:

As a result of increases in the cash rate last year and early this year, additional rises in market interest rates and tougher credit standards, there has been a substantial tightening in financial conditions since the middle of 2007. Some further tightening has occurred over the past couple of months. Conditions in international financial markets remain difficult, with heightened concerns over credit persisting.

Although many market participants see this statement as a clear sign that the RBA is going to reduce the interest rate, the timeframe for these changes is uncertain. Most probably the reduction won’t happen too soon and we will see another rate hold at the next meeting.

AUD/USD fell from 0.9293 to 0.9213 as of 7:47 GMT today — that’s the lowest level since April 14. Current downward trend continues since July 15 when this currency pair reached its 25-year high level. EUR/AUD rose from 1.6749 to 1.6842 today — the highest value since April 23.

If you have any questions, comments, or opinions regarding the Australian Dollar, feel free to post them using the commentary form below.

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