AUD/USD Jumps Above 0.71 as RBA Sits

Australia left interest rates unchanged Tuesday after the local dollar recorded the biggest drop among major currencies last quarter, cushioning the impact of lower commodity prices and a weaker outlook in key trading partner China. Reserve Bank of Australia Governor Glenn Stevens and his board kept the cash rate at a record-low 2 percent, as predicted by markets and economists, following reductions in May and February. The currency dropped almost 9 percent in the June-September period.

The weaker Aussie “is loosening financial conditions and supporting growth,” Paul Bloxham, chief Australia economist at HSBC Holdings Plc, who previously worked at the central bank, said before the decision was announced. “With the Australian dollar doing the work for them, we expect the RBA to be reluctant to cut rates further, despite the slowdown in China.” Australia has so far had little success in stimulating industries with rate cuts as a decade-long mining investment boom unwinds. Businesses plan to cut investment by 23 percent this fiscal year as firms decide they can meet demand from heavily indebted households with existing capacity.

China’s slowdown has intensified pressure on the government to overhaul the tax system and labor market and boost competition to improve productivity and generate growth. The ousting of change-averse Prime Minister Tony Abbott in favor of Malcolm Turnbull, who declared he would provide the economic vision and leadership the country needed, may herald the beginning of a reform drive. One area where cheap borrowing costs have worked is the property market: prices in Sydney have soared and Stevens has described parts of the market as “crazy.”

Bloomberg

Stuart McPhee
Stuart McPhee
Australian private trader for nearly 20 years, author, trading coach, licensed adviser and regular speaker at major trading events all around the world. Graduate of RMC Duntroon and former Australian Army Officer.