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RBA cuts rates to historical lows to spur inflation

By Margaret Yang, CMC Markets

Aussie holds steady despite  rate cut

Australia’s central bank cut interest rates by a quarter of a percent to 1.5% as part of its efforts to battle against low inflation and low wage growth. The FX market didn’t see it as much of a surprise as the move was largely expected and priced into the forex market.

AUD dropped as much as 0.6% after the rate-cut decision but quickly rebounded during European trading hours as precious metals traded higher on Tuesday.

The growth prospect for Australia’s economy is clouded by slumping commodities prices amid slower global demand, as well as uncertainties over China’s economic outlook. China is the biggest trading partner of Australia and the main source of demand for iron ore in the world.

 

Yen strengthens further

Japan’s cabinet approved a 28 trillion yen stimulus package on Tuesday, but the yen strengthened further because the details of the package largely came below market’s expectation. About three quarters of the stated value comprises of low-interest loans over the course of several years. The new spending, however, only amounts to 7.5 trillion yen, which is far below Abe’s headline number of 28 trillion.

This comes against a backdrop of the BOJ’s decision to stand pat last Friday, indicating that the central bank’s monetary policy has reached the limits of its power to fuel growth and inflation.

USD/JPY has fallen to the 101.20 area this morning, as compared to 105.00 a week ago, when Japan’s Prime Minister Shinzo Abe first mentioned the plan to the public.

Crude trending lower; gold and silver higher

Crude oil prices trended lower as worries about the global growth outlook weighed on investor’s confidence again. CFTC data also showed that money managers increased short positions significantly last week. WTI crude oil prices fell to the 39.60 area, their lowest in four months.

Precious metals, on the other hand, extended the rally on a weaker US dollar. Gold and silver were up for a third day as funds flowed to perceived safe havens amid rising volatility.

Gold-Cash

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Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore.