As the market is already pricing in a rate cut today coupled with Governor Lowe’s optimism on Australia’s economy, EUR/AUD could fall further if GDP tomorrow is strong.

RBA cut rates as expected from 1.50% to 1.25%, following in the footsteps of its peer RBNZ. Instead of falling, Aussie dollar strengthened slightly as some analyst was pricing in a deeper cut at 0.50%.

• Governor Lowe’s statement cited two main concerns – inflation and jobs. He felt that the rate cut will reduce unemployment and “achieve more assured progress towards the inflation target.”

• Lowe predicts that the Australian economy will grow by 2.75% this year and next, citing increased investment in infrastructure and improvement in trade balance.

• Australia’s jobs, inflation and housing data will be the main focus from today onwards as any uptick in these data would support Lowe’s optimism today.

• Australia’s GDP to be released tomorrow will be a big test to Lowe’s speech today. The market is estimating GDP to be at 0.4% versus the 0.2% last month. If GDP were to surpass expectations, this would be in line with Lowe’s optimism, causing Aussie dollar to rally.

• EUR/AUD has broken out of its upward trend and we could see deeper slides if Australia’s GDP were to surpass market expectations. This pair could head lower towards 1.6000.