Australian Dollar Sold As Dovish RBA Cuts Hopes For Future Rate Hike

By Eric Andersen,

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 Governorscited a soft labor market, falling inflation rates, and carbonprice effects as major prompts for its decision . In light of relatively modest growth, the RBAjudged that maintaining the cash rate at 4.25 percent was“appropriate for the moment.” Furthermore, thestatement noted that if demand conditions declined, then the Boardwould move to foster economic growth by easing its monetary policyon 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.
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/market_alert/2012/03/06/Australian_Dollar_Sold_as_Dovish_RBA_Cuts_Hopes_for_Future_Rate_Hike_.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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