Australian dollar may face 2 rate cuts

The Australian dollar has taken another fall in today’s trading session after some more dovish comments from the Reserve Bank of Australia has now put the chances of a rate cut from the central bank firmly on the table later in the year.

In recent statements the bank has focused more on the chances of a rate rise than a rate cut but this time around the situation was different and the option for a reduction in rates is surely there and much of this will depend on the performance of the employment market.

“We will be monitoring developments in the labour market closely, If Australians are finding jobs and their wages are rising more quickly, it is reasonable to expect that inflation will rise and that it will be appropriate to lift the cash rate at some point” RBA Governor Philip Lowe

“On the other hand, given the uncertainties, it is possible that the economy is softer than we expect, and that income and consumption growth disappoint. In the event of a sustained increased in the unemployment rate and a lack of further progress towards the inflation objective, lower interest rates might be appropriate at some point. We have the flexibility to do this if needed.” He added.

The statement was a lot more dovish than what most analysts had been expecting and some believe that the RBA will have to cut rates more than once to bring inflation up to their preferred level which is going to cause havoc for the Australian dollar and see the currency backed down below US70c

“They (the market) haven’t really priced the coming Australian slow down, which is what the RBA basically recognized yesterday by turning neutral,” said MacroBusiness Fund chief strategist David Llewellyn-Smith

“The likelihood is that they will have to cut because house prices nearly always draw the broader economy into weakness, and they’re falling very fast in Sydney in Melbourne and are now falling in all major capitals. We think they’ll have to cut twice and that’s going to put a lot of downwards pressure on the Aussie dollar.” He added.


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