By TraderVox.com
Tradervox (Dublin) – The Australian dollar started the week on a decline after a report released earlier today showed that the Producer Price Index fell. This led to the weakening of the Australian dollar against 16 major currencies. The unexpected results have strengthened sentiments that Reserve Bank of Australia will make an interest rates cut in their next meeting. According to some analysts, there might be more than one rate cuts within the second quarter of the year; one is expected in early May while the other is expected in June. Such sentiments have been spurred by the current rate of growth in the country which is below trend.
After the PPI report, the Australian dollar fell by 0.4 percent against the dollar to trade at $1.0339 and declined by 0.7 percent against the yen to trade at 84.08. However, the Australian dollar have pared these loses after the announcement of the China HSBC PMI. The report has showed that Chinese economy has expanded marginally after registering a 49.1. The previous reading was at 48.3. The weak PPI had pushed the AUD/USD to as low as 1.0325 but later spiked to 1.0348 after the positive report from China. However, the Aussie could not hold this gain and retreated to $1.0340.
Analysts are expecting the Aussie to continue declining as the just published weak PPI is very much indicative of a weaker CPI. The two indexes have a 0.5 correlation. The chances of an easier monetary policy are higher as RBA have clearly indicated that poor CPI would led to a possible monetary policy review.
However, Australian Dollar decline is limited by the decision by the IMF to add 430 billion to prevent the Europe’s Debt Crisis from affecting global economy. The G-20 Finance Ministers have almost doubled the IMF’s firepower. The addition brings a positive tone in dealing with the effects of the European debt crisis. However, the eventual effects on the Euro-zone member countries will be measured by the ability to change structural issues facing the nations.
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