Aussie dips on RBA rate cut

Summary:

• RBA delivers another rate cut this year, but strikes more balanced tone
• Aussie declines on the decision, though its weakness could be limited
• RBNZ has been pushed to the wall, AUDNZD long looks more attractively

The Reserve Bank of Australia decided to slash its main interest rate by 25 basis points to 0.75% today, matching the median Bloomberg estimate. In its communique the central bank reiterated that it was reasonable to expect an extended period of low rates, adding though, that a gentle turning point in the economy was reached. This phrase indicates the RBA could be reluctant to continue cutting rates from the current levels even as the central bank does not rule out subsequent rate reductions if needed. In terms of developments in the domestic economy, the RBA underlined the subdued pace of wage growth as well as a possible slight slowdown in employment. The bank stressed the economy still had some spare capacity which was constraining inflation.

In our view today’s decision puts some pressure on the Reserve Bank of New Zealand to consider further rate cuts. This seems to be especially true when we take into account the latest dismal confidence data among New Zealand’s companies we were offered on Monday. Having that in mind, we reckon that buying AUDNZD could become attractive once both Antipodean central banks diverge in their policy.

The AUDNZD is hovering above its short-term support at 1.0680. Source: xStation5