The Australian dollar declined sharply in overnight trading after the country’s central bank released the minutes of the past monetary policy meeting. In the meeting, the bank decided to leave interest rates unchanged at the current level of 1.50%. What moved the market was the bank’s statement that it was open to having an interest rates cut later this year, if the unemployment rate rises and inflation rates slows further. The country’s unemployment rate is significantly stable at 4.9%.
In recent months, the Australian economy has been struggling. This is in line with what is happening around the world. The country has also suffered a devastating drought that affected many parts of New South Wales. It has also seen the demand of its real estate properties fall especially in large cities like Sydney and Melbourne. The prices have fallen because of oversupply and the weak demand from wealthy Chinese buyers.
Amidst this gloom, there are hopes that the economy has reached a bottom. This is probably because of China, which is Australia’s biggest trading partner. It accounts for a third of all goods exported by Australia. As such, when China weakens, it reduces the demand for Australian goods like coal and iron ore. In recent weeks, data from China has showed some signs of strength. The export and import data have improved. The same is true for industrial and manufacturing production. In addition, the Chinese and American officials are expected to conclude their trade talks in the next couple of weeks. The minutes said that:
Market expectations for the future path of monetary policy in a number of economies had been lowered since the beginning of the year. This was consistent with guidance from major central banks that monetary policy would remain more accommodative than earlier expected, given downward revisions to growth forecasts and little upside risk to inflation despite increasingly tight labour markets.
The AUD/USD pair declined sharply to the intraday low of 0.7140. This was the lowest level since Thursday last week. This price was along the lower line of the Bollinger Bands. The MACD has moved slightly under the oversold level. It was also close to the 61.8% Fibonacci Retracement level. There is a likelihood that the pair will resume the upward trend because the likelihood of a rate cut was already priced-in by the market.