Australian Dollar Underperforms Following RBA Rate Cut

Xe Corporate APAC

October 1, 2019 3 min read

The AUDUSD opens at 0.6705 (mid-rate) and the NZDUSD opens at 0.6242 (mid-rate) this morning.

Predictably the Australian Dollar is the worst performing of the G10 currencies following yesterday’s decision by the RBA to cut rates by 25 basis points.

The decision to cut is designed to support employment and income growth in an effort to increase inflation. "It is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target." The Board has also left the door ajar for further cuts stating they will “continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time." Current market pricing puts the chance the RBA will cut again at their November meeting at 50%.

The odds that the Federal Reserve will cut again before the end of the year increased overnight, after US manufacturing activity continued to contract in the month of September. The Institute for Supply Management reported its purchasing managers index dropped to its lowest level since June 2009, falling to 47.8 in September from 49.1 in August. Economists had forecast the index to rebound back above 50.

Yield on the 10-year Treasury which had hit a session high of 1.755% prior to the data release fell sharply on the news and is currently trading at 1.64%.

In other news construction spending in the US inched up by much less than expected in the month of August with the Commerce Department reporting spending edged up by 0.1% well below the expected 0.5% increase.

The UK manufacturing sector continues to contract but at slower pace than forecast with Markit reporting its purchasing managers index unexpectedly increased to 48.3 in September after hitting a 6 ½ year low of 47.4 in August. Economists had forecast the index to fall to 47.0.

Global equity markets are broadly lower - Dow -1.20%, S&P 500 -1.20%, FTSE -0.65%, DAX -1.32%, CAC -1.41%, Nikkei +0.59%, Shanghai Closed

Gold prices are down 1.2% to  at $1,465 an ounce. WTI Crude Oil prices have fallen sharply, down 2.5% trading at $53.36 a barrel.

Mid-Market Rates

AUDUSD0.6705-0.7%NZDUSD0.6242-0.3%AUDEUR0.6131-1.0%NZDEUR0.5711-0.5%AUDGBP0.5458-0.6%NZDGBP0.5077-0.3%AUDJPY72.25-1.0%NZDJPY67.25-0.7%AUDNZD1.0738-0.4%NZDAUD0.93150.4%GBPAUD1.83220.6%NZDCAD0.8249-0.5% GBPNZD1.96970.3%
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