Australia's dollar is little changed since the overnight announcement by the Reserve Bank of Australia to slice another 100 basis points off its benchmark interest rate. Despite the negative, the Aussie is holding on to small gains this morning.
It looks as though the big move came in the days prior, expecting a big downward adjustment by the RBA. As we explained to members of our Forex & Currency Futures newsletter on Thursday, January 29:
... In addition to entering the Australian dollar to play freshly sparked US dollar momentum, the Reserve Bank of New Zealand prompted ComDol exposure. A quick 45 minutes after the FOMC business rushed over the markets, the RBNZ announced a larger-than-expected interest rate cut. They brought their benchmark target rate down to 3.5% from 5%. According to reports, that's the lowest RBNZ rates have been ... ever. Their reason for the change was simple: global recession is impacting their economy adversely and inflation will stabilize easily with comfort/target levels.
The Reserve Bank of Australia steps up to the plate on February 3rd. At the beginning of December they slashed 100 basis points off their benchmark target rate. Sitting at 4.25% now, their economy is likely battling the same deflationary forces as New Zealand is battling. Since august, the RBA has slashed a total of 300 basis points, but the butchering probably won't stop there. We expect a sizeable cut on Tuesday. And there's a good chance the market starts pricing that in now.
Based on that alert, our members were able to squeeze out a nice, quick profit in just the three days leading up to the RBA decision.
The Aussie seems to be holding ground right now as the markets weigh the other news out of Australia – the Treasury Secretary there announced a stimulus package. About a third of the money is aimed at Australian families while about two-thirds of the funds are proposed to go towards infrastructure. We don't believe the stimulus plan will work any better for Australia than it is here n the states. Especially given the depressing growth we've seen across the Asian-bloc countries.
Clearly, traders like the Aussie today. But if fundamentals rule, the Aussie will represent another good selling opportunity again, and maybe soon…stay tuned: