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.

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