Rate Cuts Are Coming: RBA Weighs the Coronavirus’ Impact
Experts are debating whether the Reserve Bank of Australia (RBA) will cut its official interest rates tomorrow. Considering the coronavirus’ impact on the country’s economy and its biggest markets, the bank will have a difficult time deciding.
Looking at the Australian dollar, it had an extremely tough time keeping up with other major currencies last week. The Aussie did poorly against major competitors in the forex scene such as the US dollar, Canadian dollar, and more.
Prior to today’s forex news updates, the RBA was previously expected to hold on to its current levels. However, the tables have turned after a shockingly harsh run by the stock market last week.
Economists and experts revise their forecasts after the United States Federal Reserve recently said that it may also cut its rates. The Fed’s statement last week is one of the major jolts that caused the market to flip last week.
Aside from that, it also raised the alarm that the Reserve Bank of Australia could also cut its rates.
As the deadly coronavirus continues to wreak havoc, more and more central banks take measures. Market experts from all across the world are expecting banks to unleash more stimulus to their domains.
This includes the US Fed and RBA. Just on Saturday, Jerome Powell, Fed’s Head, suggested that more cuts may coming for the bank.
The Fed’s recently placed the attention to its counterpart in Australia and the AUD’s direction in the FX market.
Not the Right Support
Still, all hope isn’t a loss for the Australian dollar as experts argue about the rate cut. According to an expert, a rate cut isn’t the right stimulus that’s needed by the Australian economy.
Looking at it, COVID-19’s effect can already be felt, especially by the Chinese economy who recently reported a major contraction last week. The Chinese manufacturing PMI, one of China’s main output indicators, recorded a massive drop in the month of January.
Australian dollar investors felt the impact of the Chinese manufacturing PMI as it collapses from 50% to 35.7%. Major factories in central China, mainly on Wuhan and the province of Hubei, shut down because of the virus.
This contributed pressure to the RBA’s interest rate decision as its largest trading partner faces a gigantic problem.
It’s worth noting the Reserve Bank of Australia will have very little room to cut. A 0.25 basis point cut will set its interest rates at 0.5%.
That will leave a smaller room for the RBA to adjust in if another economic shock happens further.
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