Reserve Bank of Australia: US Dollar Weakens, AUD Strengthens as RBA Cuts Rates

On Tuesday in Asia, after the Reserve Bank of Australia cut interest rates, the Aussie dollar gained. Meanwhile, the U.S. dollar plunged with the ongoing trade cease-fire between the U.S. and China.

The greenback, which is against a basket of other currencies, glided 0.1% to 96.352 as tracked by the U.S. dollar index.

U.S. President Donald Trump and his Chinese counterpart Xi Jinping, during a bilateral meeting at the summit in Osaka, Japan, agreed to hold off imposing new tariffs. Also, importing of goods are to be moved forward with trade negotiations.

Trump stated, referring to the China’s large, long term trade surplus over the U.S. for years, the trade agreement “has to be a deal that is somewhat tilted to our advantage.”

Since September 2016, the growth of the country’s manufacturing activities was displayed and last month slow down happened then it fell to its lowest level. Meanwhile, as stocks got higher because of the news, the investor sentiment was later hit by disappointing manufacturing data from the U.S.

Rebounding from 75,000 the previous month, the U.S. jobs report is due Friday and is projected to show nonfarm payrolls rose by 164,000 in June.

The AUD/USD pair increased 0.3% to 0.6982, after the RBA cut interest rates to 1%.

Referring to the Australian economy, RBA governor Philip Lowe said the cut was to “support employment growth” and generate “greater confidence.”

In addition, he also said, “Outlook for the global economy remains reasonable” but uncertainty (in a large part due to the China-US trade dispute) had “affected investment”.

Lastly, he said, “Today’s decision to lower the cash rate will help make further inroads into the spare capacity in the economy,” he said. “It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target.”

The USD/JPY pair weakened 0.1% to 108.32. Meanwhile, The USD/CNY pair strengthened and traded 0.2%, higher to 6.8620.

Further Interest Rate Drop

On Tuesday, after the one-day fall in more than two months ahead of an expected central bank easing, Australian dollar recovered its prices. Meanwhile, the greenback was supported by improved risk appetite.

After the meeting, which could provide clues on how much further interest rates could fall, RBA Governor Philip Lowe will also speak to business leaders in Darwin.

In a news report survey, by the end of the year, economists see a chance of another cut to 0.75%.

Head of FX strategy at National Australia Bank in Sydney said, “Lowe is speaking in Darwin, and that is really where the market will be looking for clues… but our view is we will get at least one more follow-up cut.”

In addition, he also said, “The other story is the revival in the U.S. dollar’s fortunes, which has surprised me a little bit, but you have the juxtaposition of Treasury yields backing up and new record lows from European yields.”