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Australia Cuts Interest Rates for the First Time in 3 Years

The Australian dollar remains stable in the high US$0.69s following the RBA’s decision on Tuesday to cut Australian interest rates to a record low of 1.25 percent.

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In the hours that followed Tuesday’s decision by the RBA to cut interest rates to a record low of 1.25 percent, the Australian dollar gyrated here and there, but was ultimately unchanged against the US dollar at levels in the high $0.69s, which shouldn’t be a surprise given that the cut was widely expected.

The quarter-point reduction in the cost of borrowing was the first in Australia in nearly 3 years and “will assist with faster progress on reducing unemployment and will help achieve more assured progress towards the inflation target,” the RBA said.

Tuesday’s cut is yet another marker of the dovish shift among central bankers globally. The Australian dollar’s 2 percent loss against the greenback since mid-April could have been far worse if not for recent speculation that the Fed might be the next central bank to signal a rate cut.

Dovishness at the Fed or elsewhere won’t, however, be enough to prevent further losses for the Aussie; not according to AUD forecasts by GSFM, ANZ, Capital Economics and Westpac, all of which see year-end AUD/USD rates closer to $0.65.

Barring an economic miracle, which must include a thawing of US-China trade tensions, interest rates in Australia have further to drop this year, with analysts split on whether one or two more cuts is in the pipeline.


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