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AUD/USD plunges as RBA’s surprise rate cut

The bulls were caught off-guard and surrendered entire gains after the bears fought back control on RBA’s rate cut announcement, driving the AUD/USD pair sharply lower from four-day highs reached at 0.7720 levels.

Overnight, the dollar remained at eight-month lows against the other major currencies on Monday, after data showed that U.S. manufacturing activity expanded at a slower than expected rate in April adding to concerns over the strength of the economy.

The RBA cut the key cash rates by 25 bps to a record low of 1.75% at its policy meeting this Tuesday, in a bid to combat lower prices pressures and spur economic growth. The central bank sounded more downbeat on the economic prospects in light of deteriorating inflation outlook. While remained concerned over the higher AUD level, citing rising AUD could complicate economic adjustment.

The decision came a day after the Federal Reserve kept interest rates on hold last week and indicated that any future interest rate hikes would be data dependent.

Next on tap for the major remains the Fed speak due later today ahead of the US jobs data due tomorrow.

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