© Reuters. Pedestrians walk past the Reserve Bank of Australia building in central Sydney
By Virginia Furness
LONDON (Reuters) – The Australian dollar nosedived after its central bank opened the door to a possible rate cut in a remarkable shift from its long-standing tightening bias, a further indication of global economic slowdown.
The policy shift caught some investors off-guard as only just the previous day the RBA had steered clear of an easing signal when holding its official cash rate at a record low 1.50 percent for the 30th straight month.
The Australian dollar plunged 1.5 percent overnight and was set for its biggest daily drop in a year.
Elias Haddad, rates and FX strategist, at Commonwealth Bank of Australia said that while there was a risk the dollar could test $0.70, a more pronounced downward move was unlikely.
“As a bank we have pushed out our call for a 25 basis point rate hike by one year to November 2020 from November 2019,” he said.
Australia’s central bank is the latest to signal policy easing in the face of global economic headwinds.
Last week, the U.S. Federal Reserve all but abandoned plans for further rate hikes, citing slowing global growth as a risk to the world’s top economy. The European Central Bank has also sounded less certain that it will start tightening later this year.
Donald Trump’s combative State of the Union address added to the gloom on markets as the U.S. president unveiled no new infrastructure initiatives and instead raised the prospect of another shutdown should financing not be forthcoming for the wall on the U.S.-Mexico border he wants to build.
As such the dollar settled near a two-week high.
In the annual speech outlining his priorities for the coming year, Trump said illegal immigration was a national