The RBA’s official cash rate has been at an all-time low 1.50% for a record long 26 months. The upcoming RBA rate decision on 4 June, is one of the most anticipated RBA meetings in the foreign exchange market prior to Financial year end. But why? RBA Governor Lowe has recently said in his Economic outlook and Monetary policy meeting minutes that the RBA may consider cutting interest rates at the June policy meeting. Extrapolating from the ASX 30 Day Interbank Cash Rate Futures June 2019, the market has priced in a 69% chance of a 25bp rate cut by the RBA. And as the Governor’s speech is only suggestive, it is by no means a guarantee the RBA will cut rates in June 2019.
What is the ‘cash’ rate?
The Reserve Bank of Australia sets the overnight 'cash' interest rate, which is reviewed every first Tuesday of the month except January month. The RBA manages the interest rate environment through monetary policy. Typically when the economy is slowing, the Reserve Bank of Australia cuts the interest rates to stimulate the overall economic activities. Whilst lower interest rates reduce the cost of funding for businesses, it however hurts the Australian dollar as its intrinsic value eroded with lower interest rate.
Here are the potential scenarios of outcomes if the RBA cuts rates, or holding rates:
Rate Cut – If the RBA cuts rates we could see a weaker Australian dollar against the USD resulting in a lower AUD/USD FX rate.
Rate On Hold – If the RBA holds rates we could see a minimal strength in the Australian dollar and a slightly weaker USD resulting in an appreciating Australian dollar.
How could hedging products protect your bottom line?
The upcoming RBA decision and future market events show how there could be many outcomes and can impact the Australian dollar in different ways. This is why it is crucial to understand the risks associated with currency movements. To minimise your FX exposure in a fluctuating market, our Moneytech FX experts work with you to identify tailored risk management strategies to protect your bottom line. Managing the current market environment is stressful and can impact your business, let Moneytech take out the stress of dealing with foreign exchange.
For your free FX consultation or if you need more education on currency risks and hedging instruments, contact the Moneytech FX team, FX@moneytech.com.au or 1300 939 068.
The Information has been prepared by Moneytech FX Pty. Ltd. (ABN 26 151 337 852) as the Authorised Representative of Moneytech Limited (ABN 77 106 249 852) under Moneytech Limited’s Australian Financial Services licence (AFSL No.: 421 414). The Information has not been prepared taking into account your financial objectives, situation or needs, nor does Moneytech FX Pty. Ltd. purport to provide you with any investment, legal or tax advice. The Information does not constitute any offer, recommendation or solicitation to you or any person to enter into any transaction, hedging, trading or investment strategy, nor does it constitute any prediction of likely future movement in rates or prices or any representation that any such future movements will not exceed those shown in the Information.
Users of the Information should seek independent professional advice, including investment, legal and tax advice, amongst others (“Professional Advice”), on the use of the Information, whether in whole or in part, and the appropriateness of entering into a transaction, hedging, trading or investment strategy. Opinions, projections and estimates are subject to change, and any statements regarding future prospects may not be realised.
Neither Moneytech FX Pty. Ltd. nor Moneytech Limited accept any liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from the use of the Information, however so arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy in the Information, or associated services, or due to the unavailability of any other information or associated services.
The Information is subject to change without notice, and neither Moneytech FX Pty. Ltd. nor Moneytech Limited are under any duty or obligation to update or correct it. Moneytech FX Pty. Ltd. recommend that you consider its Product Disclosure Statement and other related disclosure products, and obtain Professional Advice, prior to making any decision to use its products and services, including whether to acquire or continue to hold or receive them.