"With the inflation numbers so low and the risk that if they didn't cut that the Aussie dollar would have been 76-77 (U.S. cents) by now, they felt they probably had to act".
-Shane Oliver, AMP Capital Investors
The Reserve Bank of Australia cut its interest rate by 25 basis points to an all-time low of 1.50% on Tuesday, amid signs of slowing economy. This is the second easing during this year which is supposed to defend the economy from creeping deflation as well as restrain a too-strong Aussie. Meanwhile, the following decision was widely expected by economists, with 36 out of 47 analysts surveyed by Reuters predicted a rate cut. However, according to the RBA statement, the recent increase of the Australian dollar could "complicate" efforts to adjust the economy. Moreover, the country is trying to readjust the focus from commodity products which play important role in the country's export, since commodities suffered heavily from declining prices and low demand.
In the meantime, the Australian dollar plunged as much as $0.7495 due to the stated above decision, compared with $0.7544 just before the RBA released its statement. Nevertheless, it managed to recover quickly trading around $0.7545. Concerning economic data, building approvals slipped 2.9% on a monthly basis. In addition, Australia's trade deficit equals $2.4 billion, following figure is much wider than analysts' expectations. Moreover, the exports went down 1% in June from May, while the value of imports, reached 2.0%.
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