The Australian dollar fell against its US counterpart today after the Reserve Bank of Australia released minutes of its May policy meeting, during witch the central bank has cut interest rates. Yet the drop was not big, and the Aussie actually managed to gain on the euro.
The minutes showed that the RBA staff was not as optimistic about economic growth as it has been previously:
Although the recent flow of data had been generally positive, there had also been indications that future capital spending in both the mining and non-mining sectors would be weaker than expected. Overall, compared with the previous set of forecasts, growth was now expected to take longer to strengthen and the unemployment rate was likely to remain elevated for longer. This change, and generally subdued growth of domestic costs, including wages, implied that inflation was expected to be slightly lower than in earlier forecasts though still consistent with the target.
Australian policy makers also continued to expect further drop of the currency:
Members also noted that further depreciation of the exchange rate seemed to be both likely and necessary, particularly given the significant declines in key commodity prices, and that such an outcome would help to achieve more balanced growth in the economy and assist with the transition to a lower terms of trade.
The central bank’s members preferred not to give any indications to their plans for monetary policy in the future:
Members agreed that, as at the time of the reduction in the cash rate in February, the statement communicating the decision would not contain any guidance on the future path of monetary policy. Members did not see this as limiting the Board’s scope for any action that might be appropriate at future meetings.
This means that the door to further interest rate cuts remains open. Yet it did not affect the Aussie much, most likely because the borrowing costs reduction performed earlier this month had its negative impact on the currency already, and traders feel that it is too early to worry about potential rate cuts in the future.
AUD/USD was down from 0.7988 to 0.7970 as of 12:10 GMT today. At the same time, EUR/AUD dropped from 1.4154 to 1.4024. AUD/JPY ticked down from the opening level of 95.85 to 95.76 as of now but bounced from the daily low of 95.45.
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