Australian Dollar Down 3% RBA Cuts Rates
The Australian dollar plunged 3% against the US dollar on Thursday ahead of the Reserve Bank of Australia rate cuts. Currency is down to an 18-year low of 55 USD in the forex market. The pair lost 3.2% to 0.5583 before the RBA cut interest rates 0.25%.
According to RBA, the Board will not increase the cash rate target until progress is being made towards full employment. It is confident that inflation will be sustainably within the 2-3% target band.
RBA Philip Lowe said at some point, Australia will contain the virus and the Australian economy will recover. In the interim, a priority for the Reserve Bank is to support jobs, incomes and businesses. He also added when the health crisis recedes, the country is well-placed to recover strongly.
Moreover, data showed an unexpected decline in the unemployment rate from 5.3% to 5.1% according to the Australian Bureau of Statistics.
The ABS reported there was no notable impact from the recent bushfires or the coronavirus. The employment jump last month happened before the notable increases in confirmed cases of COVID-19 in Australia.
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While the Australian dollar was buying just 55.10 US cents, the USD/JPY pair went up 1.0% to 109.16. Bank of Japan offered its stimulus to buy 1 trillion yen or $9.2 billion dollars of government bonds.
The EUR/USD slipped 0.2% to 1.0893. This came after the European Central Bank announced an asset purchase program worth 750 billion euros or $820 billion dollars.
Forex reported the US dollar index was up 0.2% to 101.752.
The global economic outlook crumbles under the spread of COVID-19 combined with the emergency cut rates. For the Australian dollar, it has been the lowest since 2002.
Westpac Senior Currency Strategist Sean Callow said the dollar is seen as a proxy for global growth. Global currencies have been weakened by the continual spread of COVID-19 as another 475 deaths were confirmed overnight in Italy. This is creating a “horrible risk environment” for investors as travel restrictions amplify, he said.
Mr. Callow also added the Aussie seems to get over-punished when the global economic outlook deteriorates.
Meanwhile, the Australian dollar found some modest support on Wednesday with RBA’s rate cuts offer to support the domestic economy. The central bank has also pledged to pump billions into the financial system. However, the currency has been sliding again at the opening of the European session.
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