RBA Cuts Rates to 3.25%: Reaction

RBA cuts its reference rate by 25 basis points to 3.25%, catching majority of traders/analysts off guard.  Only 9 out of 28 analysts surveyed by Bloomberg  predicted the cut.

The immediate reaction of AUD/USD is predictably lower; price dropped 50 pips immediately from 1.037 to 1.032. Currently we’re edging lower but price appears to be supported by 1.03 round figure.

2nd October 2012 – Expected Cut: None

With prices trading below Monday’s low, will this unexpected rate cut push AUD/USD down further? Let us take a look at the previous times where RBA decrease its reference rate.

5th June 2012 – Expected Cut: 25 bps

1st May 2012 – Expected Cut: 25 bps

5th Dec 2011 – Expected Cut: 25 bps

31st Oct 2011 – Expected Cut 25 bps

Taking a macro view:

AUD/USD Daily (line representing rate cut by RBA)

There doesn’t seem to be any strong long term correlation between AUD/USD and rates cut. Even the short-term reaction produce mixed reaction, with 31st Oct 2011 and 5th Dec 2011 showing different reactions despite both rate cuts being expected by analysts.

S&P 500 Daily

Comparing with S&P 500, one will notice that AUD/USD tracks this graph better than rates cuts. Hence the question of whether AUD/USD will move lower following RBA’s cut could potentially be better answered by asking: Where will S&P 500 and broad risk appetite move from here out?

At the risk of sounding like a broken record, this new development does not really change the overall trend of AUD/USD. Market will still be looking at Spain and also Greece for bullish/bearish direction.

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.