Australian dollar slumps as RBA set to cut rates

The Australian dollar is back below the US80¢ mark today after yesterday's statement by the US Federal Reserve and reports that the Reserve bank of Australia is considering an Interest rate cut.

An article by renowned Business reporter Terry Mccrann noted that it was almost certain that the RBA would cut interest rates after their next board meeting on Tuesday,

"A lot of things have changed since the RBA’s last meeting and rate statement in December. They are all are rate-cut positive, so to speak" Mccrann wrote

"The two big negatives are the Swiss move to delink the franc and the, true, not exactly unexpected, moved to QE by the ECB. But expected or not, the outcome is to further flood global markets with liquidity and depreciate the euro".

In regards to the recent declines in the oil price and the effect on the economy he noted,

"The big plus is of course the fall in the oil price — although the reaction has mostly been gloomy. In the longer run a lower oil price would argue against rate cuts, as it would tend to boost growth. But in the short run it works the other way, as it is yet another — and big — deflationary driver".

"The combination of central bank money printing and yet spreading deflation would by itself make it hard for the RBA to continue to stand alone in the world with its “high” 2.5 per cent official rate while (almost) everyone else is zero-plus money printing"

In another blow to the Aussie dollar yesterday the US Federal Reserve said the economy was expanding rapidly which most analysts took as a sign that they are on track to raise rates in the nearest future which will narrow the gap between the two countries.

Rates in Australia currently stand at 2.5% while in the US the rate sits at 0.25%.

Although they mentioned the word "patient" in the timing of an interest rate rise they noted the recent strength of the employment market and that it would only be a matter of time before the weakness in inflation caused by a slump in the energy sector would subside.