Aussie challenges 0.7 level after RBA cuts rate to historic low of 1%

AUD - Australian Dollar

The Australian Dollar opens this morning bouncing off resistance at 0.7 after the RBA decided to cut rates to a new all-time low of 1%. Opening this morning at 0.6993, the Aussie appreciated 0.35% on the day after starting Tuesday at 0.6963. The impetus for the move was again the RBA with all eyes firmly fixed on the RBA cash rate decision. Pundits priced in a 77% chance of a 0.25% cut to 1% and the RBA delivered which saw marginal movements Aussie. While widely expected, the move higher was also aided by a change in commentary from the RBA who have said they could cut further “if needed”, suggesting the RBA has changed to a conditional easing bias. Governor Lowe repeated the message later in a speech in Darwin suggesting there is no further urgency to ease in the near term and calling for further fiscal and structural policies to share more of the burden in supporting the economy. Despite the change in language from the RBA, the market continues to price in another rate cut in November, albeit slightly weaker than it had.

Moving into Wednesday the Aussie now turns to domestic month on month building approvals for direction. Later, in the North American session, the United States is also set to impact the Aussie with employment figures and a PMI report both set for release.

Key Movers

The Japanese Yen has outperformed overnight, appreciating 0.5% to 107.85 against the Greenback. Aided by significant falls in the bond market across the United States and European Union, the Yen again found itself the beneficiary of a “flight to safety”. Alarmingly, NAB have estimated that approximately 35% of all developed market government bonds is now trading at negative yields which in turn suggests the global economy has some significant challenges ahead.

The Great British Pound was the other major moving currency, falling 0.3% to open this morning at 1.2597. The Sterling was pushed lower after the Bank of England’s Governor Carney released a downbeat economic outlook in a recent speech, citing a number of downside risks to UK and global growth. Notably he suggested that trade tensions had the potential to “shipwreck the global economy”, which some consider to be an escalation in his language. As a result of the speech, the market is now pricing in a more than 50% chance the Bank of England will cut rates in November.

Expected Ranges

AUD/CAD: 0.9126 - 0.9195 ▼

AUD/EUR: 0.6166 - 0.6227 ▲

GBP/AUD: 1.7921 - 1.8092 ▼

AUD/NZD: 1.0432 - 1.0506 ▼

AUD/USD: 0.6962 - 0.7034 ▲