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Australian Interest Rates Hit Record Low

Last updated 2/3/2009 2:18 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

As expected the RBA lowered rates  by 100bp taking the yield to 3.25%. The easing took the cash rate to its lowest level since the RBA adopted it as a policy target in 1990. The last time overnight money market rates were this low was in the early 1960s.   Although the RBA cited deteriorating global economic conditions as the reason for its move, it made no reference to possible further cuts in March.

Analysts now expect the central bank to remain still for at least one meeting in order to allow the rate cuts to make their way felt through the economy.  In addition to the rate cuts Australian government also announced the second part of its AUD$42 Billion stimulus package with Prime Minister Rudd noting that fiscal authorities  could take further action the future .

The Aussie rallied to 6400 in the immediate aftermath of the release, on the relief that that rate cut was not steeper. Given the surprisingly sharp 150bp cut from RBNZ last week, some market participants  expected to see a possible 125bp cut from  RBA.

Despite the bounce in the Aussie we expect the downside pressure on the unit to resume, if global  economic demand shows no signs of stabilization over the next several months.  In other economic news the Australian Trade Balance showed further deterioration declining to AUD$589 from AUD$950  eyed with exports dropping by -3% while imports fell by -2%. Should that trend continue the RBA will be forced to ease further and the Aussie will suffer as a result.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.