The Australian dollar has collapsed around 1.5 cents to 0.7564 from where it was trading in the immediate lead up to the RBA’s decision to cut rates at 2.30pm this afternoon.
While there was no obvious bias in the governor Glenn Stevens’ statement there are two clear pointers to an unstated easing bias.
The first is that the RBA notes Australia’s low inflation and low inflation globally has lowered their own forecasts – that gives more room to stimulate without any upward pressure on prices.
“Inflation has been quite low for some time and recent data were unexpectedly low” the RBA said.
It added (our emphasis)
While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.
The second pointer to the door ajar for further cuts is that governor stevens has explicitly pointed to the fact that Australia’s banking regulator APRA has the housing market covered – and thus there is little risk of an acceleration in housing speculation.
As a result forex traders have read the statement with a mildly dovish bent.
Reaction will develop over the coming hours but for the moment here’s the initial reaction and collapse in the price.
We’ll update as the price action develops.