Australian Dollar Gains on Improving Sentiment, Changing Outlook for Interest Rate Cut

The Australian dollar was extremely strong on Monday, second only to the Great Britain pound. There were two likely reasons for that. The first one was the positive general market sentiment, which was favoring riskier assets. The second one was the changing outlook for the timing of an interest rate cut from the Reserve Bank of Australia.

Investors were in a positive mood at the start of the week as the rally in the stock market that has started on Friday continued into Monday. As a result, riskier growth-related currencies profited, while safer one, especially the US dollar, suffered.

But the Aussie had also its own supportive factor, specifically decreasing expectations for an interest rate cut from Australia’s central bank in the near future. Last week’s speech from RBA Deputy Governor Guy Debelle made analysts and market participants think that the central bank will act very soon. In fact, Westpac was predicting that the bank will cut interest rates to 0.1% as soon as at the next meeting on October 6. But in the newest forecast, Westpac rethought its outlook, deciding that the central bank will not announce changes to monetary policy at the same day as the government announces the budget. The reasons to expect a cut remain in place, though, and it will likely happen, just later. Now, Westpac predicts that the bank will perform the cut at the meeting on November 3.

AUD/USD rallied from 0.7029 to 0.7072 as of 21:53 GMT today. EUR/AUD dropped from 1.6525 to 1.6489. AUD/JPY rose from 74.15 to 74.60.

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Post tags: AUD/JPY, AUD/USD, Australia, Dollar, EUR/AUD, Interest Rates, Reserve Bank of Australia, Risk Appetite, Westpac Banking Corp.

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