RBA Slashes Rates to Support Economy

RBA Slashes Rates to Support Economy


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The Reserve Bank of Australia lowered interest rates for the second time this year in two consecutive meetings. The official cash rate is now at 1.00% versus 1.50% two months ago. The board believes that lower interest rates will help in achieving progress towards inflation target, support jobs, and reduce the effect of the downside risks to the economic outlook. Moreover, the bank declared that the Australian dollar is trading at the lower end of a narrow range. Since there was a chance of 82% that the RBA will cut interest rates by 25 basis point, the effect on the Australian dollar pairs was minimal. The AUDUSD dropped to $0.6958, but recovered losses and climbed to $0.6983.


The dollar index which measures the greenback against a basket of major currencies settled near a two-week high of 96.81 supported by the renewed trade talks between China and the United States. The trade truce agreed on in the G20 meeting between the US President Trump and the Chinese President Xi, raised investors' optimism that the matter which imposes heavy risks to the global economy could be solved. As a result, the Federal Reserve could be more patient before taking any easing measures. On the other hand, DXY earned support from the dropping euro as the common currency accounts for 55% of the dollar index basket. The sluggish economic data from the Eurozone triggered a drop in European yields to raise the chances of an interest rate cut by the ECB sooner than expected. The EURUSD dropped to $1.1274, and the USDJPY climbed to a two-week high of 108.52.


Precious metals prices declined as the dollar surged. Recently, gold was the investor's preferred safe haven supporting the precious metal to gain 8% in June. However, the latest development between China and the United States concerning trade enhanced investors risk appetite. The price of gold ounce dropped to a low of $1381, the price of a silver ounce drifted lower to $15.10, while palladium hovered near $1550 amid increasing demand from vehicle makers.


Oil prices hover near a five-week high supported by production cut for an additional nine months. Ahead of the meeting, there were high expectations that OPEC will extend cuts to back prices amid deteriorating global economic outlook and increased US production. Non-OPEC members will have a meeting with OPEC today to discuss supply cuts. The West Texas Intermediate crude futures settled at $59.16, and Brent futures closed at $65.19.

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