RBA Surprises Investors, Cuts by 1.00pct; BOJ on Hold

The Reserve Bank of Australia surprised investors over night by cutting the Cash Rate to 6.00%, a full 1.0% cut. The market had been expecting a 0.50% cut to 6.50%.

Last night’s rate change was the largest since December 1994 and it sent the AUDUSD tumbling to an overnight low of 0.7025, re-testing yesterday’s low of 0.6982. This represents the lowest price since September 2004.

Since then price has rebounded to a current high of 0.7355 in early London trade. This is a sign that demand has entered the market once again, at least temporarily.

In the accompanying statement, RBA Governor Glen Stevens said “conditions in international financial markets took a significant turn for the worse in September.”

“Demand and output could be significantly weaker than earlier expected.” He added, “an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers.” However, this will not be a pattern for future rate decisions.

Elsewhere the BOJ kept rate unchanged at 0.50%, sighting a sluggish economy. The vote to maintain the overnight rate was unanimous as expected. “While carefully monitoring movement in global financial markets, we will continue to strive to maintain market stability.”