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Australian Dollar Sinks After RBA Cuts Interest Rates

October 1, 2019 at 11:40 by Vladimir Vyun

An AUD100 bill with Nellie MelbaThe Australian dollar sank after a dovish interest rate cut by the Reserve Bank of Australia. The news overshadowed a positive report about Australia’s manufacturing sector.

The RBA cut its main interest rate by 25 basis points to 0.75%. While such a decision was widely expected by market participants, the Aussie dropped sharply nevertheless. The likely explanation for that was the fact that the accompanying statement signaled that it may be not the end to the easing cycle and more cuts may follow:

The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.

As for macroeconomic data, the Australian Industry Group Australian Performance of Manufacturing Index climbed to 54.7 in September from 53.1 in August. A reading above 50.0 indicates expansion of the sector, and the increase means that expansion was accelerating. That is in stark contrast to most other developed nations, where manufacturing was slowing its growth or even contracting.

According to a report from the RBA, the commodity price index rose 1.8% in September from a year ago, led by higher iron ore, gold, beef, and veal prices. The increase followed the 6.3% gain in the previous month.

AUD/USD tumbled from 0.6749 to 0.6699 as of 11:38 GMT today, pulling back from the daily high of 0.6776. EUR/AUD jumped from 1.6142 to 1.6277, rebounding from the session low of 1.6073. AUD/JPY went down from 72.94 to 72.52, reversing its earlier rally to the daily high of 73.37.

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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