Crispus Nyaga

Crispus Nyaga is a Nairobi-based trader and analyst. He started trading more than 7 years ago as a student. He has published in several reputable websites like The Street, Benzinga, and Seeking Alpha. He focuses mostly on G20 currencies, commodities like Crude oil and Gold, and European and American large-cap companies.

Yesterday, the Australian dollar rose sharply after the RBA released the interest rates decision for January. In the accompanying statement, the bank said that the economy was in a strong position, with growth expected to remain above 3.0% this year. This made the currency rise sharply against the other currencies, including the USD.

Today, the currency moved in the opposite direction. In a statement, the bank brought the probability of a rate cut. In the statement, Philip Rowe, the governor said that, ‘there are scenarios where the next move in the cash rate is up and other scenarios where it is down.’ He added that, ‘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.’

This was a reversal from the hawkish statement released yesterday. The Australian economy continues to face a number of challenges. First, the country’s housing prices are falling. This is problematic because it inhibits investments and consumption of homeowners who see their net wealth decrease. The falling prices are mostly because of oversupply and low demand.

Second, the country has the second biggest household to GDP debt at 121%. The first is Switzerland, which has a percentage of 128%. This means that increasing interest rates could have unwanted consequences of delinquencies.

Third, the natural resources that have supported the country for long have become more volatile. This has led to a slowdown in capital investments by companies in the mining sector. Fourth, the country’s inflation rate is still below the RBA’s target of 2.0%.

After the statement by RBA, the AUD/USD pair declined sharply to 0.7145. This was the lowest level since January 19th. It also led the RSI to decline sharply to below 21, which is viewed as being oversold. Later today, the pair’s movement will depend on the data from the United States.

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