The Australian dollar took a dive yesterday after a shock decision by the Bank of Canada to cut Interest rates and speculation that the proposed ECB stimulus plan will be much larger than most analysts expected.
At 5.40pm (AEDT) the Australian dollar is trading at US80.68c down from a high of US80.32c in yesterday’s trade
The Bank of Canada, in a surprise to the market cut its benchmark rate to 0.75%, from 1.00% in an effort to prop up the economy after lower inflation, and to offset the fall in oil prices, which have fallen more than 50% this year
Westpac senior currency strategist Sean Callow noted that the Australian dollar reacted negatively to the decision, dropping sharply after the announcement,
"The Australian dollar and the New Zealand dollar tumbled in sympathy with the Canadian dollar as the Bank of Canada delivered a shock rate cut," he said.
"It is very rare for the Australian dollar to respond to Canadian news but markets are obviously edgy about the Reserve Bank of Australia interest rate outlook."
“The Reserve Bank of Australia should open their eyes and use this as a wakeup call,” noted analysts from Fibogroup forex brokers
The main factor in the Canadian banks decision to cut Interest rates was the sharp fall in oil prices and with Australia’s biggest commodity Iron ore suffering the same fate at the moment the Reserve Bank of Australia may have to follow suite and also reduce rates”.
Using slightly stronger wording was Market Economics managing director Stephen Koukoulas who said that the RBA can’t just sit on their hands and should act at the next board meeting on February 3rd,
"I wouldn't say it's urgent but if they don't cut in February I don't know what's going on with them," he said.
"It's just absurd and the RBA can't let it stand."
Also pressuring the Australian dollar yesterday was news that the European central bank plans to spend more during their stimulus program to kick-start the economy than originally planned. Analysts now expect a figure of €50 billion a month until December 2016 to help the Eurozone fend off deflation.