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Australian Dollar Spikes Up After RBA Cuts Key Rate To Historic Low

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The Australian dollar firmed against its major counterparts in the Asian session on Tuesday, as the Reserve Bank of Australia slashed its benchmark interest rate to a historic low to support employment growth and attain progress towards the inflation target.

The board of the Reserve Bank of Australia, governed by Philip Lowe, decided to cut the cash rate to 1.25 percent from 1.50 percent, as widely expected. This was the first reduction in rate since August 2016.

Policymakers took this action to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target.

Today's decision to lower the cash rate will help make further inroads into the spare capacity in the economy, the board said.

Unexpected decline in the nation's retail sales in April had triggered a sell-off in the currency early in the session.

Data from the Australian Bureau of Statistics showed that Australia retail sales fell 0.1 percent month-on-month in April, after a 0.3 percent rise in March. Economists had expected a 0.2 percent sales increase.

On Monday, the aussie was trading mixed, by rising against the greenback and the yen but holding steady against the euro. Against its NZ counterpart, it moved down.

The aussie was up by 0.4 percent to 1.0608 against the kiwi, from a low of 1.0569 hit at 5:45 pm ET. The aussie had finished Monday's trading at 1.0576 against the kiwi. Should the aussie continues its uptrend, 1.08 could be its next resistance level.

Data from Statistics New Zealand showed that New Zealand's terms of trade rose 1.0 percent on quarter in the first three months of 2019. That beat expectations for an increase of 0.5 percent following the 3.0 percent decline in the previous three months.

The aussie appreciated to 0.6993 against the greenback, its biggest since May 13, and marked a 0.5 percent gain from a low of 0.6959 touched at 9:30 pm ET. At Monday's close, the pair was valued at 0.6977. Further uptrend may lead the aussie to a resistance around the 0.725 region.

After dropping to 75.08 against the yen at 9:30 pm ET, the aussie gained ground and touched a session's high of 75.49. This was 0.1 percent higher than Monday's closing quote of 75.40. The aussie is likely to challenge resistance around the 77.5 region, if it rallies further.

Data from the Bank of Japan showed that Japan monetary base rose 3.6 percent on year in May, coming in at 510.808 trillion yen. That's up sharply from the 3.1 percent increase in April.

The Australian currency, having declined to a weekly low of 1.6161 against the euro at 9:30 pm ET, reversed direction and gained 0.4 percent to 1.6095. The euro-aussie pair was quoted at 1.6110 at Monday's close. The aussie is seen finding resistance around the 1.59 level.

After recording a 4-day low of 0.9353 against the loonie at 9:30 pm ET, the aussie bounced off to 0.9395 after the RBA announcement. The aussie thus registered a gain of 0.2 percent from yesterday's New York session close of 0.9375. The Australian currency is likely to test resistance around the 0.95 level.

Looking ahead, U.K. construction PMI for May, Eurozone jobless rate for April and flash consumer inflation for May are scheduled for release in the European session.

The U.S. factory orders and durable goods orders for April will be out in the New York session.

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