The Australian dollar remains on the backfoot in today’s trading session after comments by the Reserve Bank of Australia deputy governor fueled speculation of further rate cuts as the year unfolds.
RBA Deputy Governor Guy Debelle noted that any further depreciation in the Australian dollar "would be helpful" and that other countries have shown how rates around zero percent have helped their economies come back to life,
“If you look at what happened in the U.S., Canada and the U.K., when they got down to their lows it was somewhere around about zero, quarter, half a percent. And so I think that probably gives us some sort of guide as to what the equivalent might be here.” He said.
My Debelle also noted that the current trade wars between the US and China are causing major issues to the Australian economy and a lower Australian dollar is one weapon that may offset some of the shockwaves caused by this.
"AUD/USD gave up some of the out‑performance it put on during yesterday’s New York session, easing on the cross rates and against the USD to around 0.6760 in today’s Asian session," says Richard Grace, head of FX strategy at Commonwealth Bank of Australia.
"Debelle warned the current “trade war” is a “significant risk” to Australian and global economic growth and noted the AUD plays an important role of shock absorber, and further depreciation would be helpful. Debelle stated that the likely floor for the RBA cash rate is 0.0 percent to 0.5 percent but added the RBA would look at other measures if an RBA cash rate of 0.25 percent to 0.50 percent didn’t work." He added.
According to Grace, the Australian dollar is to remain pressured as the threat of lower interest rates lingers and the prospects of a settlement in the trade dispute between the world’s 2 superpowers continues to evade the market.
"AUD/USD will remain under pressure this week and will largely be driven by global developments. We see little upside to AUD/USD in coming months and have lowered our year end forecast to $67.00c” says Grace
“A stronger USD, slowing global growth and two more RBA rate cuts will weigh on AUD. However, the narrowing AU‑US interest rate spread and Australia’s improving current account position will continue to provide some AUD support," he said
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