Aussie Falls Sharply as RBA Minutes Leave Room for a Rate Cut

The Australian dollar declined
sharply in overnight trading after the country’s central bank released the
minutes of the past monetary policy meeting. In the meeting, the bank decided
to leave interest rates unchanged at the current level of 1.50%. What moved the
market was the bank’s statement that it was open to having an interest rates
cut later this year, if the unemployment rate rises and inflation rates slows further.
The country’s unemployment rate is significantly stable at 4.9%.

In recent months, the Australian
economy has been struggling. This is in line with what is happening around the
world. The country has also suffered a devastating drought that affected many
parts of New South Wales. It has also seen the demand of its real estate
properties fall especially in large cities like Sydney and Melbourne. The
prices have fallen because of oversupply and the weak demand from wealthy
Chinese buyers.

Amidst this gloom, there are
hopes that the economy has reached a bottom. This is probably because of China,
which is Australia’s biggest trading partner. It accounts for a third of all
goods exported by Australia. As such, when China weakens, it reduces the demand
for Australian goods like coal and iron ore. In recent weeks, data from China
has showed some signs of strength. The export and import data have improved.
The same is true for industrial and manufacturing production. In addition, the
Chinese and American officials are expected to conclude their trade talks in
the next couple of weeks. The minutes said
that:

Market expectations for the future path of monetary policy in a number
of economies had been lowered since the beginning of the year. This was
consistent with guidance from major central banks that monetary policy would
remain more accommodative than earlier expected, given downward revisions to
growth forecasts and little upside risk to inflation despite increasingly tight
labour markets.

The AUD/USD pair declined sharply
to the intraday low of 0.7140. This was the lowest level since Thursday last
week. This price was along the lower line of the Bollinger Bands. The MACD has
moved slightly under the oversold level. It was also close to the 61.8%
Fibonacci Retracement level. There is a likelihood that the pair will resume
the upward trend because the likelihood of a rate cut was already priced-in by
the market.

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