The Australian dollar came under further pressure in yesterday’s trading session as expectations grew the Reserve Bank of Australia is gearing up to slash interest rates next month with the chances of such a move predict by analysts now sitting at more than 90 percent.
The trigger for the rising odds was a speech by RBA governor Philp `lowe who noted that the central bank was prepared to lower interest rates if the situation was warranted which is a sharp turn from previous statements where any talk of a rate cut was stifled.
“Lowe came as close to pre-announcing a June rate cut as it’s possible for a central banker to get yesterday, stating that, ‘at our meeting in two weeks’ time, we will consider the case for lower interest rates,” said Ray Attrill, head of FX strategy at NAB.
The Australian dollar’s losses over the past week have largely been due to expectations of lower rates which has seen a 25 point basis cut priced into the market but some analysts claimed that one rate cut won’t be enough to get the economy back on track.
If expectations of a second rate cut start to gather momentum in the market the Aussie dollar’s woes are far from over and we are likely to see further losses for a currency which was once the darling for investors seeking a higher yield.
“The RBA are reluctant rate cutters. We have known that for some time. However, persistently below-target inflation, below-trend GDP growth and a slight rise in the unemployment rate mean that policy easing now looks imminent.” said Gareth Aird, senior economist at the CBA.
“We expect the RBA to cut the cash rate by 25 basis points to 1.25% on 4 June. A further rate cut looks probable and we think that it will most likely arrive at the August board meeting.” He added
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