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Australian dollar slumps after RBA speech
Published on 06.02.2018 17:10

The Australian dollar has tumbled around 5 percent over the last 5 trading sessions against its US counterpart which gathered speed on Monday after yesterday’s plunge in the US stock market and further falls are expected if the later fails to stabilize.

In what was its biggest one day fall in history, the Dow Jones Industrial Index fell by more than 1000 points which sent shockwaves through the world financial system and left investors jumping out of riskier currencies such as the Australian dollar.

The futures market points to further losses in the Dow Jones when the market opens later today so the Aussie dollar may be in for further pain.

"Investors were dumping out of stocks, they were in free fall, something we've seen very little of during the steady bull market since basically 2009. And now we're seeing nerves in the market — some fear." Noted Uri Berliner from NPR.

Also affecting the Australian dollar was the latest interest rate decision released earlier today as well as a monetary statement from the Reserve Bank of Australia.

Most analysts had been predicting a hawkish stance from the RBA with signs of future rate increases as the year unfolds which was not forthcoming.

The main focus seemed to be on the current level of the Australian dollar and their concerns about the damage it could do to the Australian economy should it push any higher

 “On a trade-weighted basis, the Australian dollar remains within the range that it has been in over the past two years. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast” noted RBA Governor Philip Lowe

The lack of enthusiasm from the RBA has led some analysts to call off a potential rate increase in the first half of this year.

“Our base case is for the RBA to begin removing outsized monetary accommodation in May, but we have lost conviction on this call as some data reports have underwhelmed,” says Annette Beacher, chief Asia Pacific macro strategist at TD Securities.


Andrew Masters

Analyst

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