Australia Cash Rate Lowered A Full 100 Basis Points

Australia Cash Rate Actual 4.25%, Expected 4.50%, Previous 5.25%

Release Explanation: The interest rate sets the tone for mortgages, commercial loans, and all economic lending criteria. 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 has lowered its interest rate a full 100 basis points to 4.25 percent. Governor Glenn Stevens has lowered the rate to a low not seen during the last six years. By doing this, Governor Stevens and the RBA aim to restore consumer and business confidence which has been battered by the global financial crisis and hopes that this cut well help spur demand and keep the country from slipping into a period of negative growth. Ultimately, the cash rate could be headed to 3.00 percent during the next year while a recession in Australia looms over the economy. Most analysts had been expecting only a 75 basis point cut and this is the fourth consecutive monthly decrease. The last time the RBA lowered rates by 1.00 percent was in May of 1992.

Forex Technical Reaction: The Australian dollar has once again bounced off of support at the S1 pivot point area of .6337 and is finding resistance at the openning price of .6397.

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