2019.10.0103:17:00UTC+00Australian Dollar Drops As RBA Cuts Cash Rate Further

The Australian dollar turned lower against its major counterparts in the Asian session on Tuesday, erasing its recent gains, after the Reserve Bank of Australia slashed its cash rate to a record low, reflecting low inflation and higher jobless rate.

The board of the RBA, governed by Philip Lowe, decided to reduce the cash rate by 25 basis points to a record 0.75 percent. The decision was line with expectations.

The board decided to lower the rate to support employment and income growth and to provide greater confidence that inflation will be consistent with the medium-term target. The economy still has spare capacity, and lower interest rates will help make inroads into that, the bank noted.

"It is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target," the bank said in a statement.

"The Board will continue to monitor developments, including in the labor market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time," the bank said.

Survey results from IHS Markit showed that Australia's manufacturing sector expanded at a slower pace in September.

The Commonwealth Bank manufacturing Purchasing Managers' Index fell to 50.3 in September from 50.9 in August. A score above 50 indicates expansion in the sector.

The aussie showed mixed trading on Monday, by rising against the euro and the kiwi but holding steady against the yen. Against the greenback, it trended lower.

The aussie depreciated 0.8 percent to a 4-week low of 0.6723 against the greenback, from a 4-day high of 0.6775 it touched at 12:30 am ET. The pair had finished Monday's deals at 0.6750. Should the aussie drops further, it may test support around the 0.62 region.

After spiking higher to near a 2-week high of 73.37 against the yen immediately after the RBA decision, the aussie eased off by 0.9 percent, reaching as low as 72.74. The pair was valued at 72.95 when it ended trading on Monday. Next near term support for the aussie is likely seen around the 71.00 level.

Data from the Ministry of Economy, Trade and Industry showed that Japan jobless rate came in at a seasonally adjusted 2.2 percent in August - below expectations for 2.3 percent and unchanged from the previous month.

The job-to-applicant ratio was 1.59, unchanged and in line with forecasts.

The aussie was 0.8 percent weaker at 1.6205 against the euro, following a 2-week advance to 1.6075 at 12:30 am ET. The euro-aussie pair was quoted at 1.6143 at Monday's close. The aussie may find support around the 1.65 region, if it weakens again.

The aussie fell to 0.8902 against the loonie, its lowest level since August 7, and recorded a 0.7 percent drop from a 4-day high of 0.8966 seen at 12:30 am ET. At Monday's close, the pair was worth 0.8937. Extension of the aussie's downtrend may lead it to a support around the 0.87 region.

Having risen to an 8-day high of 1.0804 against the kiwi soon after the RBA announcement, the aussie turned lower, with the pair trading at 1.0769. The aussie had finished yesterday's trading session at 1.0777 against the kiwi. The aussie is seen challenging support around the 1.05 mark.

Looking ahead, PMIs from major European economies and Eurozone consumer price inflation for September will be out in the European session.

Canada GDP data for July, U.S. ISM manufacturing index for September and construction spending for August will be featured in the New York session.