The Australian Dollar plummeted by 52 pips against the US Dollar within 15 minutes soon after 07:00 GMT following news that the Australian interest rates will be cut and there will no longer be any rate hikes over the next year.
This prediction was announced by a major Australian bank, Westpac, which said that The Reserve Bank will cut the interest rate four times in 2012 by around 100 basis points to avoid hurting an economy that is already showing signs of contraction.
“The catalyst for the first move is likely to be further adverse developments in Europe and their knock-on effects on global financial market,” chief economist at Westpac, Bill Evans, says in the note. “Among the many other side-effects will be an ongoing negative impact on business and consumer confidence in Australia that is likely to become more pervasive as conditions deteriorate.”
He added that ‘‘Interest rates are too high in Australia given the state of the non-mining sectors of the domestic economy and a downward adjustment is required to avert a damaging round of contraction.”
“We now expect a sequence of rate cuts beginning with 25 basis points in December 2011 and through 2012 totalling 100 basis points prior to a period of steady rates in 2013.”