RBA Slashes Australian Interest Rate to 3.75 Percent
The Australian dollar has dropped versus its major currency counterparts today, following a bigger than anticipated cut to rates from the Reserve Bank of Australia. The RBA has cut the key rate by 50 basis points, to 3.75 percent.
The Australian dollar has long been seen as an attractive proposition, due to a higher yield than many other currency majors; the AUD/USD experienced a strong rally from the 0.800 area in 2010 through to the 1.1000 mid-2011 highs.
The RBA rate statement is released on the first Tuesday of most months, and contains the actual rate outcome and related commentary regarding key economic conditions which influenced the decision making process. The latest release can be found here
The Australian dollar could potentially see a prolonged drop now following the key event risk. Nonetheless, the AUD still remains an attractive alternative to the greenback and euro, given the troubles the respective areas are encountering. The possibility of further monetary easing could see the U.S dollar under pressure once again going forward so any AUD/USD losses may find a respite if the U.S. QE3 scenario gains traction. The U.S. Dollar Index is itself in a downtrend and testing 78.60 area support today.
The Australian dollar is currently trading at 1.0313 which is a drop of 1.39% on the daily basis. AUD/USD volatility has declined recently but could be set to reverse this trend following the rate statement data release. The next major event risk for the AUD/USD currency pair is the U.S. Non farm Payroll report, which is released on Friday at 1:30pm(GMT).