Aussie dollar dragged lower by RBA rate decision

The Aussie dollar dropped twenty US cents on the back of the RBA’s decision yesterday to leave interest rates unchanged at a record low of 2%

The Aussie dollar has drifted lower following the Reserve Bank’s widely anticipated decision to leave interest rates unchanged for the tenth straight month.

At 0700 AEDT on Wednesday, the Aussie dollar was trading at 70.50 US cents, down from 70.70 cents on Tuesday.

At its first board meeting of 2016, the central bank on Tuesday left interest rates unchanged at a record low of 2%.

But the RBA warned that tepid inflation left it plenty of room to drop rates if necessary, Nomura rate strategist Andrew Ticehurst said.

‘The RBA has signalled that labour market data and financial market turbulence – and whether this signals weaker global and domestic demand – will be critical in its cash rate deliberations,’ he said.

Nomura has a 25 basis point cut to the cash rate cut pencilled in for May.

Westpac strategist Imre Speizer said a slide in global oil prices and on sharemarkets also weighed on the Aussie overnight.

‘A decline in equity markets cast a risk averse cloud over interest rate and currency markets,’ he said.

Mr Speizer expects the currency to lose more ground against the greenback as the day progresses.

‘Upward momentum is stalling and there’s a risk of slippage toward 70 US cents,’ he said.