Aussie dollar weakened again

On 1 May, the Reserve Bank of Australia (RBA) which is the central bank, cut its Cash Rate (discount rate) by an unexpected 50 basis points (or 0.5 percentage point) to 3.75%. The market was only expecting 25 basis points cut. This measure by the central bank was to loosen monetary policy in order to boost economic activities of Australia.

The outcome was a decline in Australian dollar against major currencies, including Singapore dollar. Within minutes of the announcement by RBA, the exchange rate between Australian dollar and Singapore dollar (1 AUS to SGD) took a dive from 1.2852 to 1.2774, a 0.6% decline. Within the day, the exchange rate of Australian dollar declined about 1%. (from 1.2890 to 1.2769)

Since 13 April, when the Monetary Authority of Singapore (MAS) tightened its monetary policy to fight inflation, Singapore dollar had so far strengthened (or Australian dollar weakened) by 2.34% against Australian dollar. (from 1.3075 to 1.2769) This is significant.

The currency pair (AUD/SGD) was hit by a double whammy. On the Singapore side, the Singapore government tightened monetary policy. On the Australian side, its government loosened its monetary policy. Both actions exacerbate the decline of Australian dollar against Singapore dollar.

Copyright © 2012, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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