Australian Cash Rate Holds at 2%
As expected we did not have another Interest Rate cut here yesterday. The Reserve Bank of Australia is giving the previous cut a chance to take effect. Especially against our major trading partners – the United States, China, the United Kingdom and the Euro Zone.
Unlike last month where there was intense anticipation leading up to the rate announcement, yesterday it was business as usual. The announcement came on the back of balance of payment figures that show net exports will contribute 0.5% to the March quarter Gross Domestic Product.
Glenn Stevens said in a statement afterwards that ’The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices.’ Richard Grace of the CBA said ’The message is the RBA will cut rates if needed – but only if they need to.’
Su-Lin Ong from the Royal Bank of Canada commented ’They’re kind of in a wait and see mode.’
So no shocks yesterday as The Reserve Bank waits to see how its previous interest rate cut plays out in the markets.
Australian Dollar (AUD) / British Pound (GBP)
Briefly the British Pound touched the 2 for 1 exchange rate – the GBPAUD exchange rate nudged above 2 briefly at the end of last week.
As we started our trading day here today the exchange rate was AUDGBP 0 .5062. So there has not been runaway market activity to push the Pound way up against the Australian Dollar. With good economic news out of the UK and continuing pressure on the AUD this may change in the coming weeks.
AUD / Euro (EUR)
Greece and its debt woes just won’t go away. Greece is due to make a payment to the International Monetary Fund this Friday. The payment is $334 million United States Dollars. If it doesn’t it will join Cuba, Zimbabwe and the Sudan in the club of countries who have failed to make payments. Not a club any country wants to belong to.
Jeroen Dijsselbloem the Euro Group President has said that there is ’not enough progress.’; ’Who will blink first?’ asks Gabriel Stein, a prominent economist.
Commentators are divided on whether this is a Euro problem or just a Greek problem. If the USA defaulted it would be an economic calamity. If Greece defaults the world economy will get over it fairly quickly.
The AUD has been volatile against the Euro with the AUDEUR exchange rate opening the Aussie session at 0.6963 this morning, down on yesterday where we finished the day on 0.7073.
AUD / Japanese Yen (JPY)
The JPY has weakened against the USD by about 20% over the last 12 months but not against the Australian Dollar. Today the AUD buys JPY 96.36 down from over 100 at the end of last year but 2% up after yesterday’s interest rate on hold announcement..
Yesterday the Japanese Prime Minister Shinzo Abe and Central Bank chief Haruhiko Kuroda discussed the global economy and a slump in the yen. In fact to its lowest level against the USD since 2002.
Kuroda stated that “It’s desirable for exchange rates to be stable and reflect a nation’s economic fundamentals” without specifically commenting on the Yen’s recent movements. With Japan’s Central bank having a long history of intervention to support the Yen we may expect to see more weakening in the AUDJPY exchange rate.