RBA cuts interest rates to historic low to boost faltering economy

AUD  USD and NZD  USD

Australia cuts interest rates to new low of 1%

'With the budget in good shape but the economy slowing, there is a strong case for looser fiscal policy, including more public sector infrastructure spending.'

"Thirdly, inflation is insipid across Australia - 1.4 per cent inflation".

Australia's central bank on Tuesday cut interest rates for the second time in as many months as it strives to revive a sluggish economy and reduce unemployment, a tough task that may yet require even more stimulus.

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The Aussie could dip below $0.6950 after the RBA's decision around 0430 GMT but would likely stabilise as traders await Lowe's comments expected 0930 GMT, Attrill said. "Australia and New Zealand are coming to that norm a lot later than other countries", Colhoun added.

Though central bank officials are divided on the timing of the next policy move, market gauges of interest rates have increased the odds of an ECB cut later this month, thanks to a global drop in bond yields.

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These will be followed by the Australian AIG performance of construction index figures for June. Australia's jobless rate is now at 5.2 per cent while the RBA believes it needs to fall to at least 4.5 per cent.

Two of Australia's biggest lenders, Commonwealth Bank of Australia and National Australia Bank, resisted public pressure to pass on a central bank rate cut in full, risking a rebuke from the government. The Aussie dollar gained 0.2% to 69.77 USA cents as of 4:08 p.m. Sydney time as futures traders boosted bets the RBA will cut at least once more, though they aren't confident it will move again until November.

"This easing of monetary policy will support employment growth and provide greater confidence that inflation will be consistent with the medium-term target", Governor Philip Lowe said in a statement.

Above: AUD/USD rate shown at daily intervals.

The Reserve Bank of Australia's decision to introduce another interest rate cut will deliver homeowners an array of benefits extending well beyond monthly savings on their mortgage repayments, experts claim.

"Short positions in the Aussie were already so heavy".

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Changes in interest rates are normally only made in response to movements in inflation but impact currencies because of the push and pull influence they have over capital flows, and their allure for short-term speculators.

"Australian interest rates, like those in most advanced economies around the world, appear to be stuck at extraordinarily low levels with little prospect of going back to what was once considered to be normal". Rising rates have the opposite effect.

However, analysts expect the dollar will struggle to make substantial additional gains given expectations the Federal Reserve will cut rates due to low inflation and worries about the U.S.

Time to move your money?

"It's getting tough for the banks".

Markets are well ahead of the governor, pricing in rates of 0.75% by Christmas.

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