Everything You Need to Know About the RBA and BOC Rate Decisions

Reserve Bank of Australia (RBA)

What happened

As expected, the RBA lowered interest rates from 3.75%, following its 50 basis point-cut last month. This time around, they only cut rates by 25 basis points, sending the official cash rate down to 3.50% – its lowest level since October 2009.

What was said

Central bankers from the Land Down Under cited its bleak outlook for the global economy as a reason why they decided to ease monetary policy. In particular, the RBA cited worsening conditions in Europe and the negative effects of slower growth in China to its economy.

That’s not to say that everything’s looking fine and dandy on the domestic front though!

Consumers have been wary in spending and the measly improvement in the labor market could suggest that this trend will continue in the coming months. Also, although business credit grew in the past few months, overall growth has fallen short of impressing policymakers.

On top of that, the housing market is still a pain in the neck. It showed signs of improvement earlier in the year but has started to deteriorate again. Yikes!

How the market reacted

AUD/USD RBA Decision

But all this pessimism over the Australian economy didn’t seem to matter to Aussie bulls. AUD/USD was still able to rally almost 80 pips following the RBA rate decision. It’s probable that markets had already completely braced themselves for a rate cut and were just happy that it wasn’t by 50 basis points!

Bank of Canada (BOC)

What happened

The BOC kept rates at 1.00%, as expected.

What was said

Following the RBA’s footsteps, the BOC expressed concern about how the global economic outlook has taken a turn for the worse in recent weeks. Apparently, the European debt crisis is a headache regardless of what continent you’re on!

On the domestic front, the economy hasn’t been living up to the BOC’s expectations either. The central bank expected more from the economy in the first quarter, as the economy only expanded by 0.5% in Q1 2012.

Meanwhile, housing activity has surprised to the upside, but the BOC feels uncomfortable about increasing household debt in a time of weak income growth. Also, the BOC sees government spending staying low in the future (budget adjustments yo!), and it thinks that exports may be bogged down by weak global demand and a strong Canadian dollar.

Still, the BOC saw it fit to hold rates steady, and even said it may withdraw some stimulus if the economic recovery continues and excess supply thins out.

How the market reacted

USD/CAD BOC Rate Decision

The market’s initial reaction was bullish for the Canadian dollar, as many thought the BOC would tone down its hawkishness. Imagine their surprise as the BOC signaled a potential move to cut back on stimulus!

Needless to say, we got plenty of action in the hours surrounding these two rate decisions. And you know what that means… opportunities to make pips!

What we saw were sharp moves that could’ve yielded pretty pennies in a matter of minutes. So were you able to capitalize on these major market events?