Australian Dollar (AUD) Exchange Rate Tumbles after RBA Minutes

During the local session the Australian Dollar fell to a low of 0.5132 against the Pound and 0.7610 against the US Dollar as minutes from the latest Reserve Bank of Australia policy meeting were published. At the last gathering, policymakers opted to leave interest rates on hold after issuing a 0.25% cut at the previous meeting. As a second cut had been anticipated, the Australian Dollar was bolstered by the announcement. However, these minutes showed that the RBA is contemplating slashing borrowing costs further in order to shore up the domestic economy. The central bank highlighted the risks being posed to growth by the overheating housing market and asserted that the loosening policy being adopted by several other major institutions is keeping the domestic currency stronger than it should be given the drop off in commodity prices.

The minutes stated; ‘In considering whether or not to reduce the cash rate further at this meeting, members saw benefit in allowing some time for the structure of interest rates and the economy to adjust to the earlier change. They also saw advantages in receiving more data to indicate whether or not the economy was on the previously forecast path. [...] Taking account of all these factors, members judged it appropriate to hold the cash rate steady for the time being, while recognising that further easing over the period ahead may be appropriate to foster sustainable growth in demand while maintaining inflation consistent with the target.’

The Australian Dollar was also feeling the pressure as an RBA board member asserted that a more hawkish Federal Reserve could trigger an ‘Aussie’ sell off. Roger Corbett commented; ‘I think when [a rate increase] does occur it will have quite a big impact on monetary markets around the world. It’s one of those things that you know it’s going to happen but when it does happen it’s a little different [to what was expected] And it will probably have a downward pressure on our own exchange rate which at the present time wouldn’t be a bad thing for Australia.’

Australia’s ANZ Roy Morgan Weekly Consumer Confidence Index had little impact on the Australian Dollar, despite showing a modest increase from 110.3 to 110.8 in the week ending March 15th. As European trading began the ‘Aussie’ did climb by 0.3% against a broadly softening Pound and 0.2% against the US Dollar. Australia’s Westpac Leading Index (due out at 23:30) may case additional Australian Dollar movement.