The US Dollar looks to April’s service-sector ISM data to inform Fed policy speculation. The Australian Dollar rose despite an RBA interest rate cut.
Talking Points:
Aussie Dollar Gains Despite RBA Rate Cut Amid Fading Further EasingBets
US Dollar Looks to Service-Sector ISM Figures to Inform Fed Rate Outlook
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The Australian Dollar traded higher following a policy announcement from the Reserve Bank of Australia. While policymakers cut the benchmark interest rate to a record-low 2 percent as widely expected, the accompanying policy statement struck an upbeat tone that seemed to lower the probability of further easing in the near term.
Governor Glenn Stevens and company specifically cited “improved trends in household demand over the past six months and stronger growth in employment”. The decision to cut was chalked up to the forgiving inflation outlook, which the central bank said “provided the opportunity…to reinforce recent encouraging trends”.The Aussie rose alongside front-end bond yields, speaking to the announcement’s supportive impact on policy bets.
A quiet economic calendar in European trading hours may see the markets waiting for April’s ISM Non-manufacturing Composite reading as the next significant intraday inflection point. The data is expected to show that service-sector activity growth decelerated last month, registering at the weakest pace since May 2014. A soft print may encourage bets on a relatively later arrival of the first post-QE Fed interest rate hike and weigh on the US Dollar, although follow-through may be short-lived as Friday’s Employment report looms large.
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