Tuesday, October 2, 2012

Currency Wars - RBA lowers cash rate by 0.25%

It seems Australia has made another move in the Currency War by again lowering the official cash rate by 0.25%. The reasons stated in the article below for the move are valid but I am sure downward pressure on the AUD:USD exchange rate was also in the minds of the Mandarins of Martin Place.

The immediate impact of the cut was to raise precious metal prices (in AUD) and lower the AUD:USD exchange rate.

Chart from xe.com

Chart from goldprice.org

From The Sydney Morning Herald
The Reserve Bank has cut official interest rates to their lowest in three years in response to a worsening outlook for the global economy and signs of a weakening local labour market.

The RBA cut the cash rate by 0.25 percentage points to 3.25 per cent in a move that will be welcomed by borrowers.

Global growth risks

The RBA flagged weaker global growth and a high exchange rate as the reason for cutting rates.

"The outlook for growth in the world economy has softened over recent months, with estimates for global GDP being edged down, and risks to the outlook still seen to be on the downside," governor Glenn Stevens said in his accompanying statement. "Economic activity in Europe is contracting, while growth in the United States remains modest."

"Growth in China has also slowed, and uncertainty about near-term prospects is greater than it was some months ago.

"Key commodity prices for Australia remain significantly lower than earlier in the year, even though some have regained some ground in recent weeks."

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