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Australian dollar dips as central bank signals rate cut in June

The Australian dollar fell against its U.S. counterpart May 21 after Reserve Bank of Australia Governor Philip Lowe said the central bank will consider cutting interest rates at its next monetary policy meeting in June.

Earlier the same day, minutes of the central bank's May 7 monetary policy meeting showed that policymakers had considered that a decrease in the cash rate "would likely be appropriate" in a scenario where "inflation did not move any higher and unemployment trended up." The board had agreed that a further decline in unemployment would be consistent with achieving its medium-term inflation target of 2% to 3%.

Data from the Australian Bureau of Statistics showed May 16 that the country's seasonally adjusted unemployment rate rose to 5.2% in April from a revised 5.1% the previous month. Meanwhile, underlying annual inflation in Australia came in at a "noticeably lower-than-expected" reading of about 1.5% in the first quarter, below the central bank's target.

"A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target. Given this assessment, at our meeting in two weeks' time, we will consider the case for lower interest rates," Lowe said at the May 21 speech in Brisbane, shortly after the release of the central bank's May 7 meeting minutes.

The Australian dollar dropped 0.25% to below 6.89 U.S. cents as of 2 p.m. Canberra time.

Lower interest rates could be expected to support the Australian economy through a depreciation of the Australian dollar and a reduction in interest payments, though the central bank's policymakers recognized that their effect on the economy could be smaller than in the past, the minutes also showed.

The cash rate has been unchanged at 1.50% since August 2016. The central bank will release its next monetary policy decision June 4.