Will the Australian central bank cut rates?
Updated
Bolstered by a rally in commodities, improved manufacturing data and employment levels in Australia, the economy is doing very well. In fact, it has been the best performing economy among developed nations outside Europe.
However, the appreciating AUD is undermining this strong economic performance, dragging the country down and hampering growth. It is in the Australian central bank's best interest to cut interest rates to allow the AUD to depreciate and the economy to grow with the strength it should be.
As well as this, the inflation levels in Australia are still below the 2-3% target at 1.7%, giving room for a rate cut.
I think that further appreciation of the AUD will cause central bankers to realise its unsustainability - for want of a better word - in undermining economic growth, and will go forward with a rate cut. Thus, if the AUD reaches the region indicated by a box on my diagram, I will consider shorting AUD, with a target price somewhere in the low 70 cents region.
However, the appreciating AUD is undermining this strong economic performance, dragging the country down and hampering growth. It is in the Australian central bank's best interest to cut interest rates to allow the AUD to depreciate and the economy to grow with the strength it should be.
As well as this, the inflation levels in Australia are still below the 2-3% target at 1.7%, giving room for a rate cut.
I think that further appreciation of the AUD will cause central bankers to realise its unsustainability - for want of a better word - in undermining economic growth, and will go forward with a rate cut. Thus, if the AUD reaches the region indicated by a box on my diagram, I will consider shorting AUD, with a target price somewhere in the low 70 cents region.
Trade closed: target reached
I went short before the meeting at the beginning of May. Target reached.
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