Fundamental Comment

Australian dollar rebounds from four-month low as RBA holds rates

Australian dollar rebounds as RBA holds rates

The Australian dollar rebounded from four-month low versus the U.S. dollar on Tuesday after the Reserve Bank of Australia opted to hold interest rates and kept growth forecasts unchanged.

The AUDUSD pair is currently trading higher at 0.6720 after hitting a high of 0.6726, noting that the session’s low was recorded at 0.6678, the lowest since early October last year.

The pair has been falling over the past five weeks due to the negative impact of the spread of the Chinese coronavirus on financial markets.

Today, the RBA decided to hold its cash rate at 0.75 percent, defying some forecasts of seeing an interest rate cu by 25 basis points.

Some analysts predicted an interest rate cut today to help the economy overcome the impact of the summer wildfires and the outbreak of the epidemic in its trading partner China. Futures still pricing a 73 percent chance the RBA would cut the cash rate in April to 0.50 percent.

However, the RBA remained upbeat on the economic outlook, as it reiterated growth forecasts at 2.75 percent growth this year and 3 percent in 2021.

RBA Governor Philip Lowe said the undergoing challenges would only "temporarily weigh" on domestic growth, but reiterated that the central bank would not hesitate to ease monetary policy if required.

The Australian dollar has been dragged lower by the drop in commodities prices, more specifically iron ore and copper, and the travel ban on Chinese tourists to Australia, which accounts for 0.9 percent of Australia’s GDP.

The dollar index soared for a second straight session at 97.73, noting that the spread of the Chinese virus has been boosting haven demand on the green currency. 

Share Article