Posted November 07, 2018 03:11:38 Aussie dollars have dropped almost 2 per cent in value against the US dollar in the first week of November after the Federal Reserve announced its decision to hold interest rates at a record low and raise rates in a move designed to boost growth.
The Australian dollar is down more than 4 per cent against the greenback since it settled at $US1.3064, up more than $1 from the same period last year.
That was the biggest one-day fall since March.
In a move that has come as a shock to many investors, the Reserve said it would cut its benchmark interest rate from its record low of 0.25 per cent to 0.05 per cent by early next year.
“The outlook for inflation remains unchanged at around 2 per to 2.5 per cent,” it said in a statement.
It is also expected to keep the Federal Government’s target of a 2 per, 2.25 or 3 per cent annual growth rate in the economy.
Economists and the Reserve’s governor have been predicting a rate cut would help Australia’s economy, and it is likely to boost consumer spending and boost wages.
However, it is not clear whether it will make much of a difference.
Australia’s economy has been struggling with the cost of housing and the lack of a healthy private sector has been hurting the economy, as has the drop in mining output.
The Reserve said the decline in the Australian dollar was mainly due to “uncertainty about the outlook for Australian economic growth and economic activity in the longer term” and the continued decline in oil prices.
This is not the first time the Reserve has raised interest rates, but the rate cut was seen as being more targeted to encourage growth and to provide stability to the economy ahead of the global economic crisis.
Last week, the Fed raised rates by an extra 1 per cent for the first half of the year, after a second round of bond purchases had failed to provide much stimulus to the global economy.