RBA Cuts interest rates to 2% – May 2015

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The Reserve Bank of Australia, in its policy setting meeting today decided to cut interest rates by 2%. Today’s policy decision see’s the RBA cut rates by 25bps from 2.25% previously, bringing the overnight cash rate to 2%.

In its monetary policy meeting, which was rather short, the RBA noted that although the global economy was expanding at a moderate pace, commodity prices continued to decline. It also noted that with global monetary policy continuing to be accommodative, while it expects the US Federal Reserve to hike rates later in the year (the RBA expects a Fed rate hike in September). Domestically, the RBA cited a moderate pickup in activity in the housing and employment sectors while the Central Bank expects inflation to remain consistent within the RBA’s target band for the next two years.

In regards the impact of lower interest rates on the housing markets, the RBA noted that it was steadily working with other regulators to assess and contain risks in the property markets. It said that while the Australian Dollar has depreciated in value against the US Dollar, further depreciation is likely and necessary.

Upon the release, the Aussie initially spiked lower to $0.778 but managed to reverse the losses to make a session high of 0.78525. Across the board, the Aussie managed to trim its losses as the currency was seen trending higher.

The RBA’s interest rate cuts, meets the economists’ expectations of a 25bps cut, although some argued that a 50bps cut would have offered the element of shock and awe in order to subdue the recently stronger Aussie dollar.

Against the Kiwi, the AUD was trading near 1.046 highs after trading in a tight range for the most part.

Following the RBA monetary policy decision, the minutes of the meeting will be released on May 8th, which could offer further insights into the discussions that led to the policy decision. Ahead of the minutes, on May 7th, the Australian unemployment data will be released with expectations of a lower than previous growth and an increase in the unemployment rate from 6.1% to 6.2%.

Besides the domestic data, focus will also be on the US Non-farm payrolls due this Friday. A better than expected number is needed for the US Dollar Bulls to push the Greenback higher, failing which, the Aussie could very well see further gains against the Greenback.

Technically, the Aussie bounced off a major support at 0.78 and is currently trading near 0.788, a minor support and resistance level. A break above this price point could propel the currency higher, while to the downside, the AUDUSD needs to close below 0.78 in order to target the next price point at 0.772

AUDUSD - H4 Chart, 05/05/2015
AUDUSD – H4 Chart, 05/05/2015

The expectations for a move lower is however a bit questionable as the daily charts show a bullish candlestick today after closing yesterday with a doji pattern. Today’s European and US trading sessions is likely to give the answer as a bullish close today on the Aussie could pave way for further gains in the near term.

AUDUSD - Daily Chart, 05/05/2015
AUDUSD – Daily Chart, 05/05/2015

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