The Reserve Bank of Australia is not going to lower cash rates right now. Westpac was forecasting a November and February cut to the rate; however, the situation is not ideal for a lower rate. Two Australian banks changed their forecast, which caused Westpac to reassess earlier statements. Forex charts showed the results of this announcement by a strengthening of the AUD late Friday and well into NY’s Friday. There was more involved than just the Westpac announcement given the partial USA government shutdown.
Forex Charts after Cash Rate Announcement
The RBA put the cash rate at 2.5% after percentage cuts in May and August. The cuts were made in order to help boost business and consumer confidence. It worked and RBA does not believe there is anything else needed yet. There was a boost to the market with the elections coming to an end which actually showed in the forex charts as another gain for the AUD against numerous currencies. The situation now is supposed to hold until the second or third month in 2014. In the future more rate cuts might occur; however, there is still going to be worry about cutting rates more.
When rates are cut housing usually booms and the RBA does not want an issue like the subprime mortgage crisis in the USA to affect their shores. This is one reason the bank is being very cautious in lowering rates. The rates need to be lowered to help commerce and trade. China has put out some improved data which also helped the AUD, as reflected in forex charts where the AUD gained against most currencies including the USD. RBA’s leader is going to look slowly at the situation and not jump in too quickly.
There is always the fear that if one manipulates the market too quickly it will have the opposite effect. It is like a boat being docked in some ways. When you approach the dock you move slowly; you turn the wheel slightly and wait for the tide and the boat to correct. If you turn the wheel too hard because the boat is taking time to react you could overcorrect the boat or worse hit the dock with a harder impact. It takes finesse for docking a ship or boat, and it is the same in the economy for correcting economic issues with stability.
Forex Charts might Change for AUD
There is a concern with forex charts showing the AUD climbing in value. A better value for the AUD means more expensive exports. While China has growth they also have other partners for materials. They can seek less expensive exports, which can hurt Australia if the AUD is too high.
In recent days the NZD has actually performed better than the AUD. New Zealand is also a partner with China although for different products. For traders, checking the forex charts to see where rates are headed is important along with keeping up with the news of interest rate cuts by the RBA.