The Australian Dollar gained on peers like the US Dollar during the Australasian session as the Reserve Bank of Australia (RBA) refrained from cutting borrowing costs.
After the central bank slashed the cash rate to a record low of 2.25% earlier this year, many industry experts expressed the opinion that the RBA would lower interest rates further in order to combat the impact of a struggling domestic economy, global deflationary pressures and falling commodity prices.
Rate cut speculation has dragged the ‘Aussie’ lower in recent weeks, so the fact that the RBA acted in defiance of these expectations helped the South Pacific currency rebound.
The Australian Dollar surged by more than 1% against several of its most-traded counterparts, and the AUD/USD exchange rate moved away from its recent 6-year low.
In a statement issued following the decision, RBA Governor Glenn Stevens asserted; ‘Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The board will continue to assess the case for such action at forthcoming meetings.’
The Australian Dollar surged to a high of 0.7711 against the US Dollar and achieved a high of 0.5170 against the Pound.
The commodity-currency’s gains were aided by the news that the pace of Australian retail sales growth far outstripped estimates in February.
On a month-on-month, seasonally adjusted basis, retail sales increased by 0.7% – up from positively revised sales growth of 0.5% in January. Economists had expected sales growth of 0.4%.
Other Australian data wasn’t quite so positive (the AiG Performance of Service Index for March slid from 51.7 to 50.2) but the ‘Aussie’ held gains.
AiG said of the result; ‘The services sector expanded for the second consecutive month in March, albeit at a mild pace. The seasonally-adjusted Australian Industry Group Australian Performance of Services Index (Australian PSI® ) declined by 1.5 points to 50.2 points in March to remain above the critical 50 point level. Much of the growth was again concentrated in the health and community and financial and insurance services sub-sectors, while retail trade also expanded.’
As the week progresses, further Australian Dollar to US Dollar (AUD/USD) exchange rate fluctuations could be caused by the ANZ Roy Morgan Consumer Confidence index, the publication of minutes from the most recent Federal Open Market Committee meeting, the AiG Performance of Construction Index for March, US initial jobless/continuing claims numbers, Chinese inflation data and Australia’s Home Loans/Investment lending reports.
Any US reports which support the case in favour of a delayed US interest rate increase may see the AUD/USD pairing extend gains.