Australian Dollar Drops Against All Majors After RBA Cut Rates

Australia’s dollar dropped against all of its 16 major peers after the country’s central bank cut interest rates by 25 basis points today.

The so-called Aussie dropped to the lowest in more than three weeks against its U.S. counterpart after the Reserve Bank of Australia lowered its benchmark rate to 3.25 percent, the lowest level since 2009. Only nine of 28 economists surveyed by Bloomberg predicted the cut. Swaps markets indicated before the RBA announcement that there was a more than 70 percent chance of a reduction in the cash rate target, according to data compiled by Bloomberg.

“We were calling for a 25 basis point cut today, and that’s what they delivered,” said Callum Henderson, Singapore-based global head of currency research at Standard Chartered Plc. “The knee-jerk reaction to the decision is negative” for the Aussie dollar, said Henderson, who expects the currency to decline to $1.0250 over the next few days.

The Australian dollar touched $1.0294, the lowest since Sept. 7, before trading at $1.0306 as of 4:42 p.m. in Sydney, 0.5 percent below yesterday’s close.

The currency reached a 12-month low versus its New Zealand counterpart, falling as much as 0.9 percent to NZ$1.2402, before trading at NZ$1.2403. It dropped 0.4 percent to 80.47 yen.

Australian government bonds were little changed, with the 10-year yield at 2.98 percent.

RBA Statement

The RBA statement accompanying today’s decision signaled that Australia, which has benefited from a once-in-a-century mining boom, faces weaker economic growth.

“The peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected,” RBA Governor Glenn Stevens said in the statement. “Growth in China has also slowed, and uncertainty about near-term prospects is greater than it was some months ago.”

Swaps data indicate a more than 60 percent chance that the RBA will lower its benchmark rate again at its next meeting in November.

The RBA also issued a report today which showed its commodity price index was at 90.1 in September from a revised 89.2 the month before that was the lowest since 2010.

In neighboring New Zealand, a report showed that commodity export prices advanced last month, buoying the local currency. ANZ National Bank Ltd.’s price index rose 3.5 percent to 263 in September, its highest level since April.

The New Zealand dollar, nicknamed the kiwi, rose 0.4 percent to 83.11 U.S. cents, as Asian stocks gained.

The MSCI Asia Pacific Index of shares rose 0.1 percent following a 0.6 percent advance in the MSCI World Index yesterday.

An increase in New Zealand’s commodity prices “is certainly a positive for the kiwi dollar,” said Jonathan Cavenagh, a Singapore-based currency strategist at Westpac Banking Corp. “The main driver is better risk appetite on higher equities.”

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