Trade Desk Thoughts - RBA Cash Rate

RBA Cash Rate Actual 7.0%, Expected 7.0%, Previous 7.25%

Release Explanation: This is the Interbank overnight lending rate. It sets the tone for mortgages, commercial loans, and all economic lending criteria. An increase in Interest Rate will have the effect of slowing economic growth. A decrease in Interest Rate is used by a Central Bank to stimulate economic growth. Economic strength can create Inflation, raising Interest Rates is one of the easiest way to contain Inflation. This is the single most important reason why Currencies are bought and sold. A strong Interest Rate and robust business cycle will attract foreign investment. A weak Interest Rate will normally lead to a weak Currency as investors swap the higher yielding Currency for a profit.

Trade Desk Thoughts: The Reserve Bank of Australia cut the Cash Rate for the first time in 7 years, as the economic expansion cools and the business cycle peaks. According to the bank's analysis, the currency market had already priced in a rate cut. Most analysts expect the bank to cut further this year in order to offset the effects of the global slowdown on the local economy.

Forex Technical Reaction: The aussie had a strong reaction to the news release, gaining 30 pips in a classic 'sell the rumor, buy the news'. The pair has moved lower for more than 7 weeks, falling over this period more than 1200 pips

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