Australian Dollar Slumps After RBA Policy Statement

The Australian dollar dropped today after the Reserve Bank of Australia released its Monetary Policy Statement that expressed a dovish outlook for developments in the&nbspAustralian economy.

The RBA statement released today was rather dovish. Among other things, the central bank revised down its inflation projections:

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The broad-based nature of the weakness in non-tradables inflation and the fact that wage outcomes were lower than expected over 2015 has resulted in a reassessment of the extent of domestic inflationary pressures, leading to downward revisions to the forecasts for inflation and wage growth. Underlying inflation is now expected to remain around 1–2 per cent over 2016 and to pick up to 1½â€“2½ per cent at the end of the forecast period.

The pessimistic outlook led to speculations that the RBA may perform another interest rate cut this year after it has already done a surprise rate decrease earlier this week.

Not all the news was bad for the Australian currency as the AIG construction index rose above the neutral 50.0 level in April, indicating that the sector has returned to growth. Yet the positive data was unable to prevent the big slump of the Aussie.

AUD/USD dropped 1.3% from 0.7463 to 0.7365 as of 14:21 GMT today. AUD/JPY plunged 1.7% from 80.06 to 78.66. EUR/AUD jumped 1.5% from 1.5276 to 1.5500.

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