We were all hoping to see the RBA cut interest rates before the end of 2011 and our patience was rewarded on Tuesday when they cut rates by 0.25% to 4.5%. Obviously the Aussie weakened as a result, and the market began speculating on whether there would be an additional 0.25% in the December meeting.
Last night they reduced their forecasts for growth, a stark difference in the tone from the previous quarters outlook, down from 4% to 3.25% for this financial year and down from 3.75% to 3.25% for next. Inflation forecasts were downwardly revised to 2.5% until June 2013 from 3-3.25% back in August.
They are forecasting higher unemployment and faster than expected falls in Australia’s commodity prices. The global economic instability is weighing on global growth which in turn is affecting Australian growth.
China could have a positive effect if they embark on further economic stimulus to soften the blow but already Australia is experiencing a slowdown in trade due to the European sovereign debt crisis. China’s manufacturing sector growth eased last month, with the official purchasing mangers’ index (PMI) dropping to 50.4 from 51.2 in September. This is the first time in 3 months that the reading has fallen and is a 32 month low.
Technically GBPAUD found support bang on the previous September low at 1.4998 and started this week strongly making 5 cents back – currently running out of steam at 1.5515 (which coincides with the 38.2% retracement of the fall from 1.6350 to 1.5000). With the G20 over the weekend; with the IMF lining up to pump more money into the Eurozone if they can agree the EFSF terms 1.55 might cap it.
But on the other hand, the potential for EU disappointments, the possibility of an RBA rate cut in December may be enough to push the currency pair up towards 1.60 again. If we do get through 1.55 and clients wish to target 1.60 levels, it may be wise to position a stop loss order below 1.55 to catch it if momentum fails before a move back to 1.5000
Thanks to Halofinancial for this review of the latest exchange rate data.