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Australia’s central bank cut its benchmark interest rate to a new record low earlier today, in an attempt to spur economic growth and boost the Australian economy which has been severely hit by the slump in commodity price and reliance on China. The Reserve Bank of Australia (RBA) cut its key rate to 2.5% from 2.75% which was widely expected although some analysts were predicting a 0.5% cut. This was the eighth rate cut since November 2011 when the central bank first acknowledged a slowdown in growth as the country’s decade-long mining boom began to fall.

Retail business is still weak and unemployment is rising so there may be one further cut in interest rates to stimulate the economy in the near future (possibly 25 basis points) but that could be it for the foreseeable future. Election issues will begin to dominate the markets as Prime Minister Kevin Rudd called a general election for 7 September last Friday.

The Australian dollar which has fallen 15% since the start of the year against the US dollar recovered from a three-year low when the interest rate decision was announced. The Australian dollar recovered half a per cent against the greenback.

With the Australian dollar showing strength after this morning’s decision against other currencies, now may be time to buy the Australian dollar for a 2-3 per cent short-term gain over the next few weeks.

Further reading:  Weakening Aussie Dollar Offers Silver Lining Amidst Ashes Humbling