It was as expected. ?The Reserve Bank of Australia left benchmark rates unchanged at 3.25% ? compared with some analysts calling for an unexpected rate reduction of another 25 basis points. ?As such, the Australian dollar bounced a bit following the release, jumping higher from a six week low against the US dollar. ?But, the currency continues to remain depressed in afternoon trading, leaving some scratching their heads. ?Here?s why.
On the heels of the announcement, Reserve Bank of Australia Governor Glenn Stevens noted that economic growth in the country?s largest trade partner continues to remain ?uncertain?. ?Although the Chinese economy ?remained reasonably robust in the first half of the year?, the current pace of expansion remains below trend. ?In short, the ?anticipated weaker pace of growth, or contraction, in China will continue to weigh on future prospects of Australian expansion. ?Stevens also noted that thinner demand in Chinese and international markets have depressed prices of iron ore and other commodities that are key to the country?s growth. ?Ultimately, the combined decline in commodity prices and future export business will lessen the likelihood that rates will rise, in the near term.
The sentiment has been evident in the increase of bets that the RBA will be forced to reduce rates yet again before the end of the year. ?Probabilities are now in the 80% range for another 50 basis points to be cut from the benchmark rate in the next 3 months.
And, as always, Europe remains a constant reminder of global weakness amidst any spate of Australian dollar momentum. ?With the week being chock full of short term event risk, there is a dearth of any real Aussie buyers. ?This is especially true ahead of the ECB?s interest rate meeting set for later this week.
The sentiment will continue to weigh on the major currency and extend until September 12th, when both the Dutch popular and German Constitutional Court votes are scheduled. ?Until then, it may be a slow and agonizing decline before any formidable support can be obtained in the AUDUSD currency pair.
Tags: aud/usd, Australian Dollar, Fore Commentary, Foreign Exchange, FX, Glenn Stevens, RBA, reserve bank of australia
Source: http://www.onlineforextrading.com/blog/australian-dollar-remains-weak-despite-rba-decision/
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