Will Australia Cut Rates Tomorrow?

Australia FlagAustralia’s first policy meeting of 2013 is taking place Tuesday. In 2012 Australia lowered interest rates by 125 basis points, leaving the AUD’s rate at an even 3%.

Tomorrow’s rate decision is speculated to show us another rate cut. Another 25 basis points would put the AUD at 2.75%, only 25 basis points away from New Zealand’s rate.

The AUD/USD has seen very little volatility in recent months (compared to Yen pairs), but can most definitely be affected by an additional rate cut tomorrow.

Chances of a Rate Cut

“There is more chance of a rate cut on Tuesday than markets are pricing in,” according to Ray Attrill, the co-head of foreign exchange strategy at National Australia Bank.

“After the CPI (Consumer Price Index) numbers (released) in January we thought that tilted the balance in favor of a move in February, having previously anticipated a move in March,” Attrill said, adding: “Our view is that the Australian economy is much weaker than generally understood.” (CNBC)

A rate cut on Tuesday could enforce this weakness and push the AUD even lower against the U.S. Dollar for Forex Trading.

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