The Australian dollar tumbled today after Australia’s central bank maintained its key cash rate unchanged, but suggested that the prospect for an interest rate cut remains.

The Reserve Bank of Australia left its main interest rate unchanged at 4.25 percent. Such decision was expected by market participants. Governor Glenn Stevens said that “the setting of monetary policy remained appropriate for the moment”, but added:

Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy.

The conditions indeed may worsen if the crisis in Europe would escalate. The Governor said about Europe:

The acute financial pressures on banks in Europe have been alleviated considerably by the actions of policymakers, though there is more to do to put European banks and sovereigns onto a sound footing for the longer term and Europe will remain a potential source of shocks for some time yet.

Stevens also noted an expansion of the US economy and growth of Asian economies that, despite some slowdown, remained quite robust.

AUD/USD slipped from 1.0669 to 1.0560, reaching 1.0525 intraday — the lowest price since January 25, and AUD/JPY dropped from 87.01 to 85.27 as of 23:30 GMT, while the daily low of 84.84 was the lowest since February 22. EUR/AUD advanced from 1.2383 to 1.2418.

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