Australia’s Rate Cut, Pros and Cons

There are insinuations that Australia could cut rates in August, if the Reserve Bank of Australia Go-ahead and reduce the cash rate by 25 basis points to 1.5 percent, we could see the Aussie dollar weaken and pairs like AUDJPY breaking this year low of 72.42.

This is because earlier today, Glenn Stevens said the economic outlook remains moderate, but that any appreciation of the Aussie dollar could daunt current progress as the low exchange rate has been supporting the economy. So is bank liquidity injected to boost new job creation.

Here are the two take-away from RBA statement, low interest rates are key to growth, which suggest that the central bank will be looking to cut rate further to help its sudden surge in its trade balance deficit and weak retail sales (consumer spending) data that came out today.

Two, inflation pressure remains low and could force an additional stimulus in November if Consumer Price Index stay weak in the second quarter.

“Inflation has been quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time,” said Glenn Steven, governor of the Reserve Bank of Australia.

The uncertainty in the governor’s statement was clear — weak global outlook and post-Brexit effect could force lawmakers to make monetary adjustments soon.

In the weekly outlook, this was better adjudicated but it will help to price in the possibility of the Aussie dollar plunging further, peradventure the RBA lower cash rate.