The Australian Dollar (AUD) gained on peers like the US Dollar (USD), Pound (GBP) and New Zealand Dollar (NZD) during the Australasian session as minutes from the Reserve Bank of Australia’s (RBA) latest policy meeting tempered concerns that the central bank is planning more interest rate cuts.
At its last gathering the RBA took some investors by surprise by cutting the benchmark interest rate by 0.25% to a record low of 2.25%.
This was the first time the central bank had cut borrowing costs in 18-months and followed the Bank of Canada’s (BOC) own shocking rate adjustment in January.
Falling commodity prices and flagging domestic growth were cited as reasons behind the RBA trimming borrowing costs.
RBA Governor Glenn Stevens said of the decision; ‘The available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak. As a result, the unemployment rate had gradually moved higher over the past year.’
In the immediate aftermath of the announcement, the Australian Dollar fell to a six-year low of 0.7650 US cents against the US Dollar.
The AUD/USD pairing has been struggling since the decision as investors speculate that the RBA is planning further rate cuts.
The news that the rate of Australian unemployment rose to a 13-year high of 6.4% in January also weighed heavily on the South Pacific asset, although disappointing US retail sales and consumer confidence figures tempered US Dollar gains.
However, the publication of minutes from the RBA’s meeting have lent the Australian Dollar support and allowed the commodity-driven currency to gain by 0.6% against the ‘Greenback’.
While the minutes acknowledged that the Australian economy is facing some serious headwinds, from the threat of a domestic housing bubble to lower inflation, they also implied that the central bank doesn’t intend to drive rates below 2.25% quite yet.
By implying that Australia might be set to enjoy a period of stable interest rates, the minutes drove up demand for the ‘Aussie’ and helped it achieve a high of 0.7829 against the US Dollar while pushing away from a record low against the New Zealand Dollar.
Over the rest of the week the AUD/USD pairing could experience fluctuations as a result of Australia’s Conference Board Leading Index and Westpac Leading Index.
The release of the Federal Open Market Committee (FOMC) meeting minutes could also trigger Australian Dollar to US Dollar (AUD/USD) exchange rate movement.
If the minutes are hawkish in tone, supporting the case for a sooner-rather-than-later US interest rate increase, the US Dollar could recoup its recent declines against the ‘Aussie’.
During the European session, the AUD/USD exchange rate was trading in the region of 0.7793.