Positive news broke yesterday from both the RBA and the Australian trade statistics. AUD had been in a dark place of late and this news was welcomed with open arms. However, economists are still tipping major banks in Australia to cut interest rates in 2020.
RBA Statement Pushes AUD to Front-Running Position
AUD led the charge early yesterday on the global foreign exchange markets. This came about following a statement from the Reserve Bank of Australia (RBA) which stated that improvements in the global economy meant that no immediate interest rate cuts were needed – something that investors feared. The currency also bolstered following reports on Tuesday that the country had recorded another current account surplus, prompting analysts to suggest that the mid-term outlook for AUD is set to continue its improvement.
The Interest Rate Cut Stays the Same, Giving a Boost to AUD
In a statement from the RBA, they announced that interest rates will remain unchanged at 0.75%. The RBA also stated that whilst the global risks are still tilted to the downside, some of the potential risks have lessened recently. Economists noted that these statements caused a jump in AUD. With this the Aussie Dollar’s strength meant that the GBP/AUD exchange rate fell from 1.8970 to 1.8914 yesterday.
Whilst News Is Positive for AUD, Potential Lingering Cuts May Await in 2020
The RBA statements have given the foreign exchange markets clear indication that there will be no further interest rate cuts for the time being as the global market picks up. However, there has been talk that the RBA will continue cutting rates all the way down to 0.25%, paired with quantitative easing methods which will be an attempt to boost the Aussie economy. The side effect of this however is a weaker currency, therefore the announcement that the RBA will be stepping away from this is positive for AUD’s strength, at least for now.
Alongside the positive RBA statements, the Aussie trade dynamics improved this week. The boost to the current account surplus came as exports outstrip imports, which has created a positive supply and demand dynamic on AUD. Analysts have suggested that a reduced reliance on foreign savings will support the fundamental valuation of AUD and makes it less susceptible to the risks of the global economic outlook.
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