Aussie Drops on RBA Decision To Cut Key Rate In Favor Of Economic Growth - 7.5.2013

The Australian dollar against the US dollar plunged to floor at 1.0179 after Reserve Bank of Australia unexpectedly reduced cash rate by 25 basis points to 2.75% a new record low. At its statement, the RBA governor said that the Aussie was little changed from historically high levels and that weakens exports and thus manufacturing. Lower rates could set a pressure on rising Unemployment Rate which in March rose from 5.4% to 5.6% while Retail Sales in March reduced by 0.4%. In addition, this rate cut is intended to support growth in the economy with inflation expected to be at the same level like previous year. Lastly, the House Price Index advanced by 0.1% in March much less than anticipated and down from revised February 2% increase, placing an extra weight on the currency.

The EURUSD was losing yesterday as European PMI indicated contraction in the services sector, coupled by Sentix Investor Confidence that dropped further in May compared with previous month. In addition, ECB President Mario Draghi said at a speech in LUISS University of Rome yesterday that is ready to act again on monetary policy should it be necessary. Asian shares closed in green with NIKKEI advancing by 3.55% after Draghi’s speech that ECB could lower rates further, perhaps Deposit Facility rate could move to negative ground. Lastly, the USDJPY was maintained near resistance at 99.42 until early in the morning today when it retraced towards support at 98.84.