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The RBA cut the interest rate in Australia by 0.25% to 4.25%, in a move that was widely expected. This is the second cut in a row. Glenn Stevens and his colleagues cut the rates from 4.75% to 4.50% on November 1st.  

The Aussie took a dive following this move, but it found support and bounced back up. Update.

The global economy is slowing down, and this is felt also in the Asia-Pacific region. China is showing more signs of slowdown: manufacturing PMIs are dropping, and also services PMI aren’t too far behind. In Australia is also feeling that things are changing for the worse: the housing sector is cooling and unemployment is rising.

Some though that Stevens would prefer to wait for the next meeting, held only in February, for the next move. The reason is the high uncertainty regarding Europe, and a previous tendency for a “wait and see” policy. Together with the coordinated move by central banks last week, this move by a relatively strong economy goes to show that the situation is bad.

Australian Dollar Reaction to Cut

AUD/USD dropped immediately on the move and fell below the 1.02 line. It then gradually continued lower and found support just above 1.015, a line which provided support last week.

But as the European session progressed, a new wave of optimism sent the pair higher, and it is trading at 1.0250 once again. Significant resistance is at 1.0314.

For more on the Aussie, see the Australian dollar forecast.

There are more important Australian figures this week: quarterly GDP and employment data. Very busy!

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