Release Explanation: The interest rate sets the tone for mortgages, commercial loans, and all economic lending criteria. “This is the single most important reason why currencies are bought and sold. A strong interest rate and robust business cycle will attract foreign investment” Trade Team said. “A weak interest rate will normally lead to a weak currency as investors swap the higher yielding currency for a profit” they added. Trade Desk Thoughts: In a surprise move, the Reserve Bank of Australia has decided to reduce the current cash rate to 3.00%. RBA Governor Stevens has stated that the world economy appears to still be very weak even though the credit markets have improved over the last few mont. Demand has not weakened as much as other countries and the economy remain strong while inflation is likely to decline over time. By historical standards, markets and mortgage rates are at very low levels; this combined with the substantial fiscal initiatives from the Government should provide support to domestic demand over the coming period.

Forex Technical Reaction: The Australian dollar has strengthened significantly immediately after this surprise move from the RBA. The pair gained 50 pips, retracing every pip lost during the Asian session