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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.

AUD to USD - 1 Week chart to 04 Jun
AUD/USD - 1 Week chart to 04 Jun

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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