Pound Australian Dollar Exchange Rate Eases In Spite Of Overnight RBA Interest Rate Cut

Modified: Tuesday, 4 December 2012 08:58 BST - Written by David Woodsmith

STORY LINK Pound Australian Dollar Exchange Rate Eases In Spite Of Overnight RBA Interest Rate Cut

Australia provided the main event in the currency markets during last night’s Asian session when the Reserve Bank of Australia announced its monetary policy decision for this month. A trimming of rates has been on the cards for the Anipodean central bank for almost the whole of the intervening period since its 2nd October decision to cut from 3.50% down to 3.25%, so it came as no major shock to market participants when the RBA once again eased rates, this time to 3.00%, last night.

Most investors were unsurprised when the overnight loosening of monetary policy was announced. However, the market’s reaction to the announcement was slightly outside the norm – the ‘Aussie’ rallied against almost all of the other major global currencies. This sent the GBP AUD exchange rate down to 1.5400 during the Asian session – the pair had been trading in the mid-1.5400s earlier last night.

Price action for the risk sensitive Australian tender since the news suggests that a very high percentage of investors had already ‘priced-in’ the RBA’s action. However, there would appear to be more to the overnight ‘Aussie’ buying pressure than this; the move forward for the AUD serves as a tacit vote of confidence in the comments which the RBA made in its accompanying statement. These comments saw the RBA bill the move as a positive action, describing how it would, ‘help to foster sustainable growth’ in Australia’s economy which has been suffering throughout 2012 due to the slowdown in its key mining sector.

Elsewhere, yesterday’s afternoon session brought the release of an alarmingly poor ISM Manufacturing Survey in the States. This month’s edition of the release revealed that activity levels in America’s key manufacturing sector shrank to their lowest level since the Summer of 2009 last month. The news caused a widespread shift out of Dollar-denominated assets in anticipation that 2013 may bring further Quantitative Easing from the US Federal Reserve – an action which would be sure to damage the ‘Buck’.

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