Australian dollar tumbles, braces for rate cut

Financial and commodity markets analytics

The Australian dollar is sharply lower today after positive data out of the US, and growing expectations of a rate cut next week from the RBA.

At 3.10pm (GMT) the Aussie dollar was trading at US79.96c down from US76.51c in yesterday’s trade.

The odds of the Reserve Bank of Australia cutting interest rates next week has grown to 72% after Australia’s biggest export iron ore hit a new six year low as demand from China levels off.

 Barclay’s chief economist Kieran Davies said the tumbling iron ore price may have forced the RBA’s hand and he brought forward his prediction of a rate cut from May to April,

“The RBA seems more concerned about the renewed weakness in commodity prices led by iron ore,” Mr Davies said.

“With commodities slumping again and the currency only partly reflecting that, you’ve got a gap opening up again between the currency and the terms of trade and I think that’s been a persistent source of frustration for the RBA.” he added.

The consumer confidence index from the US came in at 101.3 this month up from 98.8 in February and well above economists’ expectations for a reading of 96.

Chris Rupkey, chief financial economist at MUFG Union Bank in New York noted that this may only be the beginning, and we could see a big lift in the economy as consumer confidence gathers momentum,

"Consumers have emerged from the winter blues. If they spend anywhere as great as they feel right now, then this economy is going to roar over the next few months," he said.


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