Australia ETFs In Focus After Rate Decision

by on June 5, 2013 | ETFs Mentioned:

Last month, investors paid close attention to the Federal Reserve, as officials hinted at the central bank possibly scaling back its massive bond-buying program. And while the U.S. looks to be first in line for a full recovery, most other central banks from around the world are still struggling to implement effective stimulus measures to spur economic activity. One such nation has been Australia, whose recent policy actions have certainly raised some red flags for investors [see Single Country ETFs: Everything Investors Need To Know].

Reserve Bank of Australia Keeps Cash Rate Unchanged

Australia’s central bank announced on Tuesday that it will keep its benchmark interest rate at aSydney, Australia record low of 2.75%. In the press conference, Governor Glenn Stevens did, however, indicate that the bank still has room to cut rates if further needed, given the troubling strength in the Aussie dollar. The central bank had lowered its key interest rate from 3.00% to 2.75% in its last meeting in May because of the currency’s strength, which has hindered economic growth.

The Australian dollar has fallen roughly 6% in the past month against the greenback, catching traders’ attention. Despite this, Governor Stevens stated that “The exchange rate has depreciated since the previous Board meeting, although, as the Board has noted for some time, it remains high considering the decline in export prices that has taken place over the past year and a half.” Despite the Aussie dollar’s recent movements, many believe the Reserve Bank of Australia will keep its easing policies firmly in place [see Asia-Centric ETFdb Portfolio].

Below, we highlight the trailing six-month cash rate decisions:

Australia ETFs Performance Recap

With inflation worries on the rise and easing policies in place, Australia ETFs have struggled thus far in 2013, with many funds slipping into red territory for the year. Year-to-date the MSCI Australia Index Fund (EWA, A-), the largest ETF offering exposure to the country, has lost 0.76%, and over the trailing four-week period has tumbled 10.06%.

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Disclosure: No positions at time of writing.