AUD/USD has posted slight losses in the Wednesday session, erasing the gains seen on Tuesday. In North American trade, AUD/USD is trading at 0.6976, down 0.18% on the day. In Australia, AIG Services Index improved to 52.5 in May, showing slight expansion in the services sector. This follows four straight months of contraction. Australian GDP improved to 0.4% in Q1, matching the forecast. Later in the day, Australia releases trade balance, which is expected to widen to A$5.05 billion. In the U.S., ADP nonfarm payrolls posted a meager gain of 27 thousand, compared to the estimate of 185 thousand. In the services sector, the ISM Non-Manufacturing PMI improved to 56.9, above the estimate of 55.6. On Thursday, the U.S. posts unemployment claims.
As expected, the RBA lowered the benchmark rate by 25 basis points, to 1.25%. The Australian economy has been gripped by a slowdown due to weaker demand from China, but the RBA had balked at cutting rates, despite acknowledging the weaker economic outlook. The cut is aimed at stabilizing the economy and encouraging stronger consumer consumption, a key driver of economic growth.
Is the Federal Reserve planning a rate cut? Fed policymakers have tried to present an aura of neutrality regarding rate moves, but has taken a sharp U-turn this week in favor of an easing bias. On Tuesday, Fed chair Jerome Powell said that the Fed would “act as appropriate to sustain the expansion”, and analysts noted that he did not mention his “patient” approach to monetary policy, which has been a buzzword in Powell’s recent comments. This comes on the heels of comments from James Bullard, president of the St. Louis Fed. Bullard stated that the Fed might have to lower rates shortly due to low inflation and the ongoing trade war with China. Bullard warned that the Fed may have to deal with “an economy that is expected to grow more slowly going forward, with some risk that the slowdown could be sharper than expected due to ongoing global trade regime uncertainty“. Bullard added that the current benchmark rate, which is at a range of 2.25% to 2.50%, is too high for current economic conditions, and recommended lowering rates in order to stabilize the economy.
