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5 May 2015
RBA lowers key rate and signals likely end to easing cycle – BTMU
FXStreet (Barcelona) - Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ, reviews the RBA interest rate decision and further comments that although the central bank signalled a likely end to easing cycle and boosted the AUD, the weakening growth in China and the prospect of a Fed rate hike will weaken the Aussie ahead.
Key Quotes
“The Australian dollar has been the most volatile currency in the Asian trading session weakening initially after the RBA lowered its key policy rate by 0.25 percentage point to 2.00%.”
“The decision to lower rates further today potentially for one last time was to “reinforce recent encouraging trends in household demand”. The RBA acknowledged the “improved trends in household demand over the past six months and stronger growth in employment”. However, they cautioned that the key drag on private demand over the coming year is likely to be weakness in business capital expenditures in both mining and non-mining sectors.”
“The RBA also stated that they working closely with other regulators to assess and contain risks that may arise from the housing market in part as a result from lower interest rates.”
“The RBA judges that inflation will remain consistent with their target over the next one to two years even with a lower exchange rate.”
“The RBA reiterated that further Australian dollar weakness seems likely and necessary particularly given the significant declines in key commodity prices. However, the RBA’s decision to signal an end to their easing cycle will help to ease downward pressure on the Australian dollar in the near-term.”
“Still further evidence of slowing growth in China and the prospect of tighter Fed policy later this year should remain a weight on the Australian dollar. The final release of the HSBC China manufacturing PMI survey over the weekend signalled a further loss of growth momentum easing to 48.9 in April.”
Key Quotes
“The Australian dollar has been the most volatile currency in the Asian trading session weakening initially after the RBA lowered its key policy rate by 0.25 percentage point to 2.00%.”
“The decision to lower rates further today potentially for one last time was to “reinforce recent encouraging trends in household demand”. The RBA acknowledged the “improved trends in household demand over the past six months and stronger growth in employment”. However, they cautioned that the key drag on private demand over the coming year is likely to be weakness in business capital expenditures in both mining and non-mining sectors.”
“The RBA also stated that they working closely with other regulators to assess and contain risks that may arise from the housing market in part as a result from lower interest rates.”
“The RBA judges that inflation will remain consistent with their target over the next one to two years even with a lower exchange rate.”
“The RBA reiterated that further Australian dollar weakness seems likely and necessary particularly given the significant declines in key commodity prices. However, the RBA’s decision to signal an end to their easing cycle will help to ease downward pressure on the Australian dollar in the near-term.”
“Still further evidence of slowing growth in China and the prospect of tighter Fed policy later this year should remain a weight on the Australian dollar. The final release of the HSBC China manufacturing PMI survey over the weekend signalled a further loss of growth momentum easing to 48.9 in April.”