Markets got a bit of a surprise overnight as the Reserve Bank of Australia again slashed its key interest rate by yet another 25 basis points. That brings it to a record low of 2.75% – and the absolute lowest I can imagine it going for some time.
The Aussie (AUD) got absolutely pounded across the board overnight – losing ground to practically ever single currency on the planet. With troubling data coming out of China (Australia’s biggest trading partner) “fundamentally speaking” this can’t be seen as very good news. The AUD was only a short time ago yielding 4.75% and has taken a 200 point haircut over the past 18 months .
Short term we can see the selling pressure in AUD is obvious, and will likely provide some trade opportunities on the long side – however, I would be very cautious and not rush into anything there. Looking longer term I see this as yet another sign that the Global Economy is no doubt retracting – and that even the “best of the best” ( as Australia is generally seen to have a solid economy) are making moves in preparation.
I see the USD rolling over again here this morning as suggested and will watch closely – although commodity currencies such as AUD and NZD have also been selling off so once again – a very difficult fundamental background.