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We did not actually expect 50 basis points cut. Our forecasting was 25 basis points and then further 25 points at the beginning of June. We expect the forecast of 100 basis points total cuts in this cycle. That forecast was made in July of the last year. Essentially, with the two rate cuts that we had late last year and 50 basis points that we have got today, the 100 basis points rate cut forecast that we put out in July last year has now been fully met even slightly over than what we expected.
How would you evaluate the Aussie performance especially bearing in mind the latest news concerning the interest rate cut?
I think it is a very respectable performance. So far the Australian Dollar has set 1.025 to 1.0450 for about the last 4-5 weeks. We are still within that range. Westpac for some time has been forecasting a move down towards the parity level. That something that we do only forecasting throughout the second quarter. I think today's news mean that we should expect further weakness in the days and weeks ahead. When we think about the Australian Dollar, we have to think about the domestic rates, but we also have to focus on what is going on in offshore markets. We certainly anticipate the financial markets concerns increasing as we are moving to the French presidential election and to the Greek parliamentary elections. We are expecting softer US data continue to come out this week.
Those are the factors that should continue to weigh on the Australian Dollar.
What is your outlook for the end of the second quarter and the end of the year?
I think by the end of this quarter, we certainly continue to expect further weakness in the Australian Dollar. Our forecast for the end of this quarter for the Australian Dollar to be at the parity level. As we move through this year, I think what is going to be critically important is what the central banks response is. We have long felt that the strength that we saw in the US data to an extent is driven by unusually warm weather patterns and also by faulty investment factors. We are beginning to see it coming through and we expect that to continue. We are forecasting non-farm payrolls to be around 130 000. If the reading is about the same as last month that would be disappointing. I think that would increase pressure on the Fed to begin to more actively discuss possible QE3. We are continuing to expect weakness in the European data. As I have mentioned before we are expecting political friction to rise within Europe as well. That is something that will encourage the ECB to downward revise the outlook for the European economy. We anticipate to hear the answer to that at the press conference in Barcelona on Thursday. The ECB expectations that the global central bank liquidity is not that far away increased the value of QE3, rate cuts in Europe and more outflow operations. Those are the effects that we are expecting next year weakening the Australian Dollar and afterwards dip to the potential parity level in the second quarter. We have the Australian Dollar finishing this year at 1.04.