More RBA Rate Cuts to Come?

Last updated 3/17/2009 3:51 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

The minutes from the latest Reserve Bank of Australia policy meeting suggested that further rate cuts may be coming.  Although RBA board noted that “monetary and fiscal stimulus that had been applied to the economy was having an expansionary effect,” the Australian monetary officials noted that the economic benefits from the massive rate cuts “remained unclear”.

The ease in monetary policy has had had an immediate impact on Australian housing market as the country’s banks   have been able to lower  mortgage rates by 375 basis points since the  RBA rate cuts began in November.  Australia is one of the few G10 members with a predominantly adjustable mortgage rate housing market   and therefore aggressive monetary policy easing quickly translates into lower monthly mortgage bills for most Australian consumers.

Nevertheless, analysts forecast additional RBA rate cuts as the year progresses. One key economic factor that argues for further easing is the sharp drop in Australian GDP in Q4 of last year. The market had expected a small increase of 0.2% but growth in the Australian economy actually declined by -0.5% as the country fell into a recession much like the rest of the G10.  Australia remains highly dependent on Chinese demand and the recent rapid decline in China’s trade surplus - which will greatly reduce Chinese income - suggests that the slowdown in Australia will continue.

Despite the possibility of yet more rate cuts at the next RBA policy meeting in April, the Aussie was well bid throughout the night, holding on to the 6600 handle. With its 3.25% yield the Australian dollar remains one of the few sources of positive return for G10 investors and until and unless the economic situation Down Under begins to deteriorate, currency investors continue to  give the Aussie the benefit of doubt.

Upbeat on the Australian Dollar

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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.