RBA cuts as expected
The Reserve Bank of Australia cut interest rates as expected and the AUD rallied out of the decision. The main reason was that the RBA was looking through the impact of the virus, or at least uncertain of its impact, through to the end of the present crisis. Here is a excerpt from the minutes:
Also, the RBA did not signal further rate cuts which is why we saw Australian Bond Yields rise on the interest rate decision as well as some strength for the AUD.
A signal for the Fed?
Looking at Treasuries the 10 year yield is 62bp below the upper end of the target range for federal funds.
So, if we see a repeat of Australia's central bank action by the Fed look for a short term reversal from recent moves to safety in bonds. The general mood before the outbreak of the coronavirus was optimism on the US-China phase 1 trade deal and the potential for global trade to start picking up. In the near term the RBA may show us how the market will respond to further rounds of expected central bank easing.
