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THE TAKEAWAY:Australian Dollar moved sharply lower, as the RBA anticipates growth below trend and see potential to ease policy further.
The RBA in their February 5 meeting decided to keep rates at 3.00 per cent which was largely expected by the market.
At the last meeting, held in December of 2012, the RBA cut rates 25 basis points to 3.00 per cent citing concerns over the Fiscal Conditions in the United States, China growth as well as European weakness. The Aussie Dollar rallied against the US Dollar after the announcement was mostly expected and priced into the currency movements preceding the release.
In the February 5, 2013 statement, the Reserve Bank Governor Glenn Stevens noted that the US seemed to have avoided a fiscal contraction as well as growth in Asia stabilizing which provided comfort that the region was improving. The RBA did however, mention in their statement that the Australian Dollar was higher than expected, and that inflation at its current state would ‘afford scope to ease policy further’.
The Aussie Dollar lost ground against the USD on news that the RBA would hold rates at 3.00% as markets interpreted the Bank’s statement as dovish. The Euro, despite trending lower over the last twenty four hours, rallied against the Australian Dollar as investors sold their Australian Dollars in anticipation of potential future policy easing.
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