Australian Dollar Sold as Traders Fear Global Growth Slowdown

THE TAKEAWAY: Reserve Bank of Australia Maintains Cash Rate at 4.25% as Expected, Policy Statement Dovish > Fears of Global Growth Slowdown Return, Leading Traders to Adjust Portfolios > AUDUSD Drops on Catch Up in Sale of Other Risky Assets

The Reserve Bank of Australia (RBA) decided to hold its key interest rate unchanged at 4.25 percent. Though the RBA’s action was no surprise to traders, the accompanying statement communicated the banks intentions to lower interest rates if global growth fears infected demand for Aussie goods. As a result, the AUDUSD fell under significant selling pressure.

The central bank’s Board of Governors cited a weak housing market, a soft labor market, falling inflation rates, and carbon price effects as major prompts for its decision. In light of relatively modest growth, a product of structural changes and strong private spending, the RBA judged that maintaining the cash rate at 4.25 percent was “appropriate.” Furthermore, the statement noted that if demand conditions “weakened materially,” then the Board would move to foster economic growth by easing its monetary policy on the basis of cutting interest rates.

Traders expected that the cash rate would remain at 4.25 percent, but the RBA’s statement prompted a selloff of the Aussie as market played catch up in diminishing exposure to risky assets. Bearish traders pushed the AUDUSD exchange down as low as $1.039.