Australian dollar tumbles broadly today after RBA surprised the markets by cutting the cash rate by 25bps to record low of 1.75%. The central bank noted in the statement that "inflation has been quite low for some time and recent data were unexpectedly low". And, even though there might be some temporary factors, there were also "ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world". And those factors together point to "lower outlook for inflation than previously forecast." Meanwhile, "where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate. At present, the potential risks of lower interest rates in this area are less than they were a year ago."
Technically, AUD/USD quickly gives up early gain after the release and is back at around last week's low at 0.7547. We maintain that AUD/USD should have topped at 0.7833 and deeper fall is expected to 0.7490 and below in near term. EUR/AUD's strong rally and break of 1.5201 resistance confirms that fall from 1.6250 is completed at 1.4432. Further rally should be seen to trend line resistance at around 1.6080. AUD/JPY's break of 80.67 support suggests that rebound from 0.7758 is completed and deeper fall should be see back to this low.
ECB president Mario Draghi hit back at the criticism from Germany regarding ultra loose monetary policies. Draghi said that "there is a temptation to conclude that...very low rates...are the problem." "But they are not the problem. They are the symptom of an underlying problem." He noted that "those advocating a lesser role for monetary policy or a shorter period of monetary expansion necessarily imply a larger role for fiscal policy."
SNB chairman Thomas Jordan said that the Swiss Franc remains significantly overvalued even though negative rates and intervention are helping to stabilize prices. He pledged to continue to take account exchange rates in setting monetary policies. Some analysts noted a shift in tone to more openness to interventions. But the overall messages Jordan delivered were essential the same as before.
One the data front, Australia building approvals rose 3.7% mom in March. China Caixin PMI manufacturing dropped to 49.4 in April. Swiss SECO consumer confidence dropped to -15 in April . UK PMI manufacturing and Eurozone PPI will be released later today.