"Unexpected" Australian Rate Cut To Record Low Unleashes FX Havoc, Global "Risk Off"
From ZeroHedge:
Three months ago, when Australia unexpectedly revealed that
its recent "stellar" job numbers had in fact been cooked we asked,
rhetorically, why the sudden admission it was all a lie? Simple:
weakness in commodity prices "is far greater than people had been
expecting,” the nation's top economist said. Australia is now "swimming
against the tide" because of uncertainties in the global economy, he
added. Which we translated as follows: "we need more easing, and to do
that, the economy has to go from strong to crap." And with the
Australian economy suddenly desperate for lower rates from the RBA, one
can ignore the propaganda lies, and focus once again on the far uglier
truth.
Overnight this was finally confirmed when in a surprise move,
Australia’s central bank cut its benchmark interest rate for the first
time in a year to a record low and
left the door open for further easing to counter a wave of disinflation
that’s swept over the developed world. The move sent the local currency
tumbling and local stocks climbing.
Reserve Bank of Australia Governor Glenn Stevens and his
board lowered the cash rate by 25 basis points to 1.75 percent Tuesday, a
move predicted by just 12 of 27 economists surveyed by Bloomberg.
The rest had seen no change. Data last week showed quarterly deflation
in the consumer price index and the weakest annual pace on record for
core inflation, which the RBA aims to keep between 2 percent and 3
percent on average.
“Inflation has been quite low for some time and recent data were
unexpectedly low,” Stevens said in a statement. “These results, together
with ongoing very subdued growth in labor costs and very low cost
pressures elsewhere in the world, point to a lower outlook for inflation
than previously forecast.”
As Bloomberg reminds us, Australia’s central bank acted after two
regional neighbors stood pat last week - New Zealand and Japan.
Illustrating the impact of central bank decisions on exchange rates, the
Aussie has the weakest performance among the G-10 since last Wednesday,
a day before the Bank of Japan and Reserve Bank of New Zealand
meetings. The announcement sent the AUDUSD plunging.
"They’re saying that there’s no point in messing around, let’s get in
and do this, cut the cash rate and get some of the speculative money
out of the Australian dollar,” said Chris Weston, chief market
strategist at IG Ltd. in Melbourne....MUCH MORE
