Reserve Bank of Australia cuts Australian Mortgage Rates 1%

THE Reserve Bank of Australia has slashed interest rates by 100 basis points to 4.25 per cent.

Interest rates are now at a six and a half year low, and more cuts are on the way, economists say. CBA chief economist Michael Blythe said the RBA was likely to cut by a further 50 basis points in February. "It's a brave call to say there aren't any more rate cuts out there but you need more negative data to get large, rapid-fire rate cuts."

Last month the central bank cut interest rates by 75 basis points to 5.25 per cent. This followed on from a huge 100 basis point cut in October, and a 25 basis point reduction in September.

Most economists had tipped a 75 basis point cut today.

Minutes after the decision was announced, a spokesperson for Commonwealth Bank told news.com.au the bank would pass on the full rate cut, effective December 12. National Australian Bank followed suit, announcing it would pass on the full rate cut effective December 12, while Westpac said it would cut rates by 80 basis points. ANZ cut rates by 0.83 of a percentage point, effective December 12.

The central bank will be hoping today's rate cut encourages Australians to pull out their wallets, after data released this morning showed spending remained stagnant, despite recent figures showing that prices have started to fall.

RBA governor Glenn Stevens said although government and central bank stimulus packages had begun to take effect, global financial market sentiment remained "fragile".

"With confidence affected by the financial turbulence and a decline in the terms of trade now under way, more cautious behaviour by both households and businesses is likely to see private demand remain subdued in the near term," Mr Stevens said.

"With that outlook, and with capacity pressures now easing, it is likely that inflation in Australia will soon start to fall."

Macquarie Group interest rate strategist Rory Robertson said the RBA had, with its latest cut, reversed some six years of monetary policy tightening in just four board meetings.

Economists believe rates still have a way to fall, with some looking for a cash rate of 3.25 per cent next year. It is only the second 100 basis point rate cut since May 1992 - following a 100 basis point cut in October this year. The total 300 basis points worth of cuts since September is also the deepest set of rate cuts since early 1990, when the RBA eased monetary policy ahead of a recession.

Taking into account today's cuts, Australians will head into the Christmas season around $700 a month better off, according to experts.

Full story visit www.news.com.au

Pounds to Australian Dollars is currently 2.3255

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Australian Dollar falls than goes up and than goes down than it goes up

Hi All

Australian Dollar falls, than goes up and then goes down, then it goes up and i am now getting very confused!!!

Today the pounds to Australian dollar rate opened at 2.3800 than went down to 2.3500 before going back up to 2.3900 before ending at 2.3300. This is getting very confusing and messy and show the importance of using limit orders to achieve the best exchange rates. today were buying Australian dollars at 2.3850 for a client which saved the client £3,459.12 or almost 2% just on the exchange rate alone.

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Australian Dollar Exchange Rate Falls

Hi All,

Today had to be one of the worst days yet for the Australian Dollar after crashing by more than 4% in little over 4 hours. The pounds to Australian dollar exchange rate was last at 2.4300 after opening at 2.3300 this morning. The reason for the move is unclear but it seams like foreign exchange traders were looking to test the Reserve Bank of Australia's resolve of protecting the 0.6000 against the US Dollar.

Do we see this move strengthening the GBPAUD back to the 2.5000 level - we doubt it as Sterling has its own problems but any thing is possible against the Euro exchange rate which went from 1.95 to 2.055. But all bets are off if global stock markets continue to fall with the Detroit Bailout failing to get government approval.

On a positive note Reserve Bank governor Glenn Stevens last night stated that it was unlikely for property prices to crash do to under supply of Australian Property. On the downside getting an Australian Mortgages may be a little harder as the Australian Banks tightening the lending criteria as they have here in the UK.

exchange rate to Buy Australian Dollars currently 2.4100

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The Reserve Bank of Australia cut Australian Mortgage Interest rates by 75 bp to 5.25%

Pounds to Australian Dollar Outlook: The Reserve Bank of Australia cut Australian Interest rates by 75 bp to 5.25%, the biggest of the G7 bunch and more than 50 bp forecast as well as the third cut since September. The total drop in australian interest rates is now 200 bp. Despite a visible drop in demand from China and other emerging countries, Australia will probably have only a shallow recession this year and next, so the cuts are precautionary as well as a response to dipping domestic data like retail sales.

As a general rule, rate cuts are bad for a currency. This time the Australian Dollar rose from an overnight low at 65.97¢ to 68.29¢. The question is whether it will test the recent high at 68.93 from Oct 30. We don’t have a good explanation except that traders like decisive action, presumably think lower rates will work to keep the economy humming along, and the big move in a short while may suffice, leaving the Australian Dollar as the highest yielder in a world that generally seeks carry trade yield.

Market News offers an interesting contribution. Deputy RBA Gov Battellino raised questions about further rate cuts, saying "the cycle in the Australian housing market, rather than following the US market, is in fact at a more advanced stage; it is probably leading the US market by three years or so… The Australian housing market was at its hottest in 2003, whereas the US market peaked in 2006." Battellino also mentioned a “persistent inflation overhang” that makes it harder for the RBA to manage the economy.

We say this is interesting but not useful - regardless of the condition of the housing market, Australia cannot escape global consequences, including demand destruction for commodities.

Argh well at least Australian Mortgages are falling!

Pounds to Australian Dollars currently 2.3073

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iPod index reflects dive of Australian dollar

AUSTRALIA is the cheapest place in the world to buy an Apple iPod, according to a study to be released today, highlighting the dramatic fall in the Australian dollar in the past several months, The Australian reports.

CommSec will today release details of its "iPod index", which measures the price of an 8GB iPod nano in 62 countries to compare currencies.

CommSec chief economist Craig James said Australia had jumped to the cheapest spot after being placed 14th cheapest in July. An 8GB iPod costs $US131.95.

In July, a 4GB iPod (then considered the entry-level product) cost $US181.50.

"It's quite remarkable, we are the cheapest by a long way," Mr James said.

"Our currency has fallen dramatically."

It would be about 25 per cent cheaper for a British tourist to buy their iPod in Australia, rather than at home, Mr James said.

But while having an Australian dollar at US65c-67c was good news for manufacturers and other exporters as well as the tourism industry, Mr James said the iPod index shows the Australian dollar may have fallen too far too quickly.

Read more on this story at The Australian.

Pounds to Australian Dollars currently 2.3800

Reserve Bank of Australia intervened today and were looking to Buy Australian Dollars

Bloomberg reports that the Reserve Bank of Australia intervened today and were looking to Buy Australian Dollars, following a similar intervention on Friday. The only comment we have from the RBA is that the bank “provided more liquidity to the foreign exchange market.'' We don’t even know the name of the spokesman, let alone the amount. The NKS says “Foreign Exchange Traders said the bank's entry level was US$0.6125. Yet, as of 0550 GMT, the pair is even lower at US$0.6088.” The RBA confirmed the Friday intervention on Sunday, perhaps hoping to scare of Foreign Exchange traders when the market opened on Monday. It didn’t work.

Pounds to Australian Dollars currently 2.5100

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Forex Trading Reports

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This is probably going to go down in Foreign Exchange history as one of the dumbest trades ever

Australian Dollar Outlook

We were wondering about the bizarre behavior of the Australian Dollar exchange rate on some days in recent weeks.

Now we may have an explanation.

According to the WSJ, Citic Pacific, the bluest of the blue-chip Chinese companies in Hong Kong (called, naturally, a red chip), could lose HK$15.5 billion (US $2 billion), and possibly more, because of leveraged positions on the Australian dollar. Citic has a big investment in an Australian mining company.

The WSJ says “the mining investment requires the company to buy equipment and supplies in Australian dollars. It isn't unusual for companies to hedge their foreign currency exposure. But Citic Pacific did something more: It turned to structured products dubbed "accumulators" that obligated it to buy a specified amount of Australian dollars"

In this case, about nine billion Australian dollars (US$6.1 billion at current exchange rates), at a fixed price.

“The Australian dollar's sharp downturn in recent months, a side effect of the global credit crunch, has left Citic badly exposed. Already, the bets have cost the company HK$807.7 million in realized losses and would cost it HK$14.5 billion more if they were marked to market at current values. Because Citic Pacific retains open positions, the losses could deepen if the Australian dollar continues to slide against the U.S. dollar.”

Bloomberg says CITIC stock fell 66% since the disclosure on Oct 20. It has “four times more money riding on the Australian dollar than it earned last year… [with a commitment] to buy as much as A$9.44 billion … at an average price of 87 U.S. cents. The currency traded at 66.72 cents as of 7:54 p.m. in Sydney” today. This is probably going to go down in Foreign Exchange history as one of the dumbest trades ever, along with VW and Bank Negara from the 1980’s.

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