As we projected on Monday, the Reserve Bank of Australia moved forward to reduce the interest rate in the country by 25 basis points. The Cash rate, as it is commonly referred to, is currently at 0.50 per cent.
In doing so, the RBA was the first major central bank to implement looser monetary policy in a bid to tackle the negative effect of the coronavirus on the economy, ahead of FED’s decision on Wednesday.
Unlike the US, however, the Australian economy is much more dependent on the free flow of goods and services internationally, and thereby on the stability of the global supply networks.
Its dependence on the wellbeing of the Chinese economy has compelled the Governing Board of the RBA to act fast and adopt the more accommodative monetary policy. That is done in a bid to ensure that the negative ripples from the world's second-largest economy will not prove to be detrimental in the long run.
Meanwhile, the Australian dollar was affected positively by the reduction of the interest rate, contrary to conventional logic (you can read why in the AUDUSD analysis from Monday).
The AUDUSD pair is currently testing the strength of the resistance level at 0.66298, which is also the 23.6 per cent Fibonacci retracement.
AUDUSD 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
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