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Aussie Plummets as RBA Unexpectedly Cuts the Interest Rate

By Benjamin Spier
07 May 2013 05:29 GMT

THE TAKEAWAY: RBA unexpectedly cuts the interest rate to 2.75% -> Central bank says growth continues below trend -> Aussie plummets to a two month low

The Australian Dollar fell sharply following the news that the Reserve Bank of Australia cut the interest rate target to a record low of 2.75% after its May meeting. The interest rate had remained at 3.00%, where majority of Bloomberg surveyed economists expected the interest rate to remain, since it was last cut in December of 2012.

The RBA said that the below-trend economic growth from the second half of 2012 continued into 2013. The RBA also said that the global economy is also likely to record growth a little bit below trend. The central bank said the inflation rate, which was last reported at 2.5% in Q1, was less than expected. However, the RBA sees inflation at its 2-3% target rate over the next 1-2 years.

Despite the RBA cutting the interest rate to the lowest on record, the central bank still said it used only some of the scope of a rate cut. The central bank also mentioned that the Australian Dollar exchange rate is historically high.

As a big move downward is typical following an unexpected interest rate cut, the Australian Dollar fell nearly sixty points to a two month low against the US Dollar. AUD/USD might next see support at a nine month low set at 1.0115, and resistance may be provided by a broken support line around 1.0200.

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AUDUSDDaily: May 07, 2013

Aussie_Plummets_as_RBA_Unexpectedly_Cuts_the_Interest_Rate____body_audusd.png, Aussie Plummets as RBA Unexpectedly Cuts the Interest Rate

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

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07 May 2013 05:29 GMT