Australian Dollar Sold as Traders Fear Slowing Global Growth
THE TAKEAWAY: Reserve Bank of Australia Maintains Cash Rate at 4.25% as Expected, Policy Statement Neutral > Fears of Global Growth Slowdown Return, Leading Traders to Adjust Portfolios > AUDUSD Drops on Catch Up in Sell Off 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 soft labor market, falling inflation rates, and carbon price effects as major prompts for its decision. In light of relatively modest growth, the RBA judged that maintaining the cash rate at 4.25 percent was “appropriate for the moment.” Furthermore, the statement noted that if demand conditions declined, 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 $1.061.
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