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Aussie sharply dowm0n after RBA surprising rate cut

Tuesday, Feb 03 2015
While markets were anticipating that RBA will leave its interest rates unchanged, RBA surprisingly cut its interest rates from 2.50% to 2.25%. This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target. 
 
The CPI recorded the lowest increase for several years in 2014. This was affected by the sharp decline in oil prices at the end of the year and the removal of the price on carbon. Measures of underlying inflation also declined a little, to around 2¼ per cent over the year. With growth in labour costs subdued, it appears likely that inflation will remain consistent with the target over the next one to two years, even with a lower exchange rate.
 
In the following statement it was said that Aussie “remains above most estimates of its fundamental value.” Also, “a lower exchange rate is likely to be needed to achieve balanced growth in the economy,” according to the statement. “The economy is likely to be operating with a degree of spare capacity for some time yet.”
 
After the decision and the following statement Aussie was pushed sharply down and is currently being traded around 0.7660 area. Pair is likely to find support around 0.76 handle and resistance above 0.7720 level. There will be no major data releases in the rest of the session.
Last modified on Tuesday, 03 February 2015
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