Once again, the Reserve Bank of Australia holds the cash rate at 2.25%, defying market expectations and sparking a bid in the Aussie from forex traders. Why did the RBA hold?
Going into today’s monetary policy decision event, it was expected by some economists and many traders that we may see another cash rate cut from the Reserve Bank of Australia (RBA) to 2.00%. Unfortunately for the Aussie bears, the RBA held the cash rate at 2.25%, saying that it was appropriate to hold interest rates steady for the time being.
The board cited growth continuing at a below-trend pace and falling energy prices weakening the their trade numbers, but lending to businesses and housing prices continue to improve. Also, looking back at the data over the past month, we saw an improvement in Australia’s jobs data (unemployment rate ticks lower to 6.3% from 6.4%) and better-than-expected retail sales data (0.7% vs. 0.4% forecast/previous), so it’s no wonder why we saw the RBA lean in favor of no change…for now.
How did the Aussie React?
With some forecasting the possibility of the RBA cutting today, it’s no surprise that the Australian dollar popped higher when the news came out of no change. Although, it was very odd that we saw a jump higher one minute before the scheduled announcement. Was the decision leaked early or was there just an overly confident group of Aussie bulls out there?
Whatever the case may be for the early buying, AUD/USD went booming higher from .7600 to .7700 where it seems to have already found sellers and possibly reversing the move heading into London trade.
A case can be made that we won’t see any further interest rate cuts from the RBA to stem the rapid rise in housing prices and ever growing housing debt, but as the RBA mentioned in its official statement, further easing may be needed down the road. In their view, the Australian dollar remains too high to start fostering sustainable growth in demand, with RBA Governor Stevens mentioning that AUD/USD at .7500 as an appropriate valuation back in December. This well-known target may be the reason we saw the quick fade at .7700, prompting forex traders to place bets with the Governor’s long-term view at better prices, or to take a position on what may be another inevitable rate cut from the RBA.
What do you think? Further rate cuts from the RBA or was February the last in 2015?