Forex Investment and Currency Trading

Australia

RBA surprises by cutting 100 bps

• At today’s Board meeting, the RBA decided that circumstances required the largest easing in monetary policy since May 1992, reducing the cash rate by 100bp to 6.0%. While a 100bp easing is a dramatic move by the RBA (markets had factored in 50bp), the size of the cut is fully justified by the exceptional circumstances for global financial markets and the deteriorating outlook for the global economy. They therefore see today’s action by the RBA as a positive development, putting Australia at the forefront of global central banks dealing with the current phase of the credit crisis. After easing by 100bp today, it is expected a further 25bp-50bp easing before year-end (either November or December) followed by a further 100bp or so of easing over the course of 2009. While this would likely start at the February Board meeting (ie. the first for the year), the timing of each move would be conditional on global market and economic developments. Significantly, however, the leverage of the official cash rate over financial conditions has been sharply reduced by tighter lending standards, higher bank
  funding costs and reduced competition. Consequently, the stimulus to economic growth will be more muted until credit conditions improve markedly.

Japan
The Bak of Japan leaves rates unchanged at 0.50% but cites deteriorating outlook

• As expected the BoJ left the ODR unchanged at 0.50% but in line with the recent developments in the domestic economy it highlighted that domestic and global slowdown is “becoming clearer”. For the first time in months markets are beginning to price in the possibility of a rate cut at the next BoJ meeting on November 21st.