The RBA finally decided that the best course of action to stimulate both price levels and the economy would be to cut its rate by 25bp to 2.25%, however, the question now is, will the easing bias prevail? And if so, how many more cuts can we expect before year-end?
The statement from RBA Governor Glenn Stevens lacks any guidance, and leaves up for interpretation what could come next, however, based on the AUD bearish reaction, with no bounce so far, it seems as though the market continues to expect further rate cuts in the months to come, now that the RBA has dropped the key phrase dominating the statements for more than a year - 'period of stability in rates' -, by itself a major dovish turn.
While the market had been pricing in fairly high chances of a rate cut today, the reaction on the Aussie appears to have a second driver creating more substance in the move. That driver looks to be a renewed focus to target lower levels in the domestic currency, after the RBA noted "AUD remains above most estimates of its fundamental value, a lower exchange rate is likely to be needed to achieve balanced growth in the economy."
The statement from RBA Governor Glenn Stevens lacks any guidance, and leaves up for interpretation what could come next, however, based on the AUD bearish reaction, with no bounce so far, it seems as though the market continues to expect further rate cuts in the months to come, now that the RBA has dropped the key phrase dominating the statements for more than a year - 'period of stability in rates' -, by itself a major dovish turn.
While the market had been pricing in fairly high chances of a rate cut today, the reaction on the Aussie appears to have a second driver creating more substance in the move. That driver looks to be a renewed focus to target lower levels in the domestic currency, after the RBA noted "AUD remains above most estimates of its fundamental value, a lower exchange rate is likely to be needed to achieve balanced growth in the economy."
