Australian Dollar Fell as RBA Maintained Policy Rate with Dovish Bias


Feb. 3 2016, Updated 2:05 p.m. ET

Volatile day for the Australian dollar

The Australian dollar ended on a lower note against the US dollar on February 2, 2016, after gaining early in the session as the RBA (Reserve Bank of Australia) decided to keep interest rates unchanged at 2.0%. The central bank expressed confidence in the growth expected in the economy, which drove the Australian dollar higher. However, the RBA is maintaining a cautious stance regarding price levels that could lead to further policy easing, which drove the Australian dollar lower.

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Low inflation could drive further monetary policy easing

Low inflation levels in the economy led to a dovish tone by the central bank. The bank stated that the monetary policy could be eased further if prices remained low. Low domestic and global demand has been weighing on the Australian dollar as foreign investors become wary of the slowdown in China, causing a selloff in global equity markets. Commodity and crude prices have fallen drastically in January, further pushing the sentiment down for the Australian dollar. The RBA is keeping a wait-and-watch stance in terms of whether the improvement in the labor market remains consistent. However, further easing in the monetary policy can be expected depending on global growth and inflation levels.

Impact on the market

Australian ETFs were trading on a negative note on February 2, 2016, in sync with the Australian dollar. The Vanguard FTSE Pacific ETF (VPL) fell by 1.6%. Meanwhile, the iShares MSCI Australia Index Fund ETF (EWA) was trading lower with a fall of 3.2%.

The Australian ADRs (American depositary receipts) trading on US markets were also trading on a mixed bias. BHP Billiton (BHP) declined by 6.4%. In the IT sector, Atlassian (TEAM) rose by 0.80% while Australian banking ADR Westpac Banking (WBK) was trading on a significant negative bias, declining by 4.1% on February 2, 2016.


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