Forex Investment and Currency Trading

Reserve Bank of Australia moves rates into expansionary territory with 100bp cut to 4.25%. The Reserve Bank of Australia reduced the cash rate by a further 100bp to 4.25%. This decision was broadly in line with market pricing on the day, but a bolder move than expected by most economists, who were anticipating a 75bp cut. The Bank notes that the “Australian economy has been more resilient than other advanced economies”, but gives considerable weighting to the impact on confidence of the continued global financial turbulence. The most significant aspect of today’s Statement is recognition that policy has moved
to an [...]

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The RBNZ cut the OCR by 100 bps taking it to 6.50% at the October OCR Review. The Governor removed the caveat that future rate reductions would be partly dependent on the trajectory of the NZD, instead hitching future rate cuts to a fall in non-tradeables inflation and global developments.
Market expects domestic inflation to ease in the future, dragged lower by recessionary conditions while monetary policy needs to move to a neutral to mildly stimulatory setting. The curve should steepen further and the NZD is likely to come under more downside pressure now that Bollard has tacitly said [...]

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Despite a sharp drop in consumer and business sentiment in the first quarter which has bled into the second quarter, Australian GDP growth once again surprised to the upside in 1Q 2008.
Residential investment and exports are now the slowest categories of GDP. Export growth has been constrained by weather disruptions and the slow infrastructure build. The deceleration of residential investment is not the start of a cycle similar to that in the US because underlying demand for housing continues to run at a faster pace than new supply, but has run into competition for scarce materials and labor from non [...]

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Price action in AUD/USD has this week been dominated by the poor May employment data in Australia and a generally rampant USD. But more generally, markets have been dominated by central banks’ warnings on rising inflation expectations and almost unprecedented movements in short term interest rate expectations around the world. Recent days have seen warnings on the threat of rising inflation expectations from the Fed Chairman, Vice Chairman and at least five other Fed officials, the ECB President and no less than seven other ECB governing council members. As a consequence, short
term interest rate rates have priced in anything up [...]

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