The Australian dollar fell sharply yesterday to levels not seen since the dying months of the GFC in 2009 after the Reserve Bank’s June board meeting minutes made it clear there would be more rate cuts to come.
The dollar dipped under 70 US cents last week and steadily worked its way down a few points on Monday and yesterday morning until the minutes were released at 11.30am and the currency slumped to 68.33 to 68.57 over the next 90 minutes or so.
It wasn’t a plunge, just a steady fall till it hit levels not seen since March 2009 (six months after Lehman Brothers collapsed and the global financial system was crunched. In falling that far it also dropped through the April 15 (this year) low of 68.46.
The driver was the statement in the minutes that RBA board members agreed that further reductions to the cash rate were “more likely than not” at the June 4 meeting when the cash rate was dropped to a new low of 1.25%.
The minutes reveal that members agreed that a further easing in monetary policy would be likely as the central bank tries to stimulate the economy through lowering the exchange rate, reducing borrowing costs for businesses, and lowering interest payments on loans to households.
The minutes again underlined that the RBA will monitor the jobs market as it mulls the timing of any further cuts.
“A lower level of the cash rate would assist in reducing spare capacity in the labour market, providing more Australians with jobs and greater confidence that inflation will return to be comfortably within the medium-term target range in the period ahead,” said the minutes released on Tuesday.
“Given the amount of spare capacity in the labour market and the economy more broadly, members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead.”
The minutes saw economists and analysts revise their estimates of when the next rate cut – August is a tip because it will be after the June quarter inflation data release in late July. August also sees the release of the new forecasts in its third Statement on Monetary Policy for the year.