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AUD: RBA keeps its options open - MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 2, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Derek Halpenny, European Head of GMR at MUFG, notes that the Australian dollar has weakened this morning in the aftermath of the RBA’s decision to leave its key policy rate unchanged at 2.00%.

    Key Quotes

    “The statement from the RBA indicated that the low level of inflation “may provide scope for easier policy, should that be appropriate to lend support to demand”. Clearly, that element of easing bias has been maintained and understandably, it is developments abroad that appeared to worry the RBA the most.

    The wait-and-see approach apparent in the RBA’s decision and statement would allow the policy board to judge whether recent strength in the labour market would continue and whether the turmoil abroad would result in weaker global and domestic demand.

    Considering this is the first meeting for the RBA in nine weeks, making a judgement on recent financial market turmoil is the very least you would have expected from the RBA. One might have thought the bias for further easing might have been a little stronger and hence we would conclude that the evidence of domestic demand strength must be convincing the RBA that the Australian economy may well be able to weather the turmoil abroad.

    After all, there has been plenty for the RBA to be reasonably confident about since that last meeting on 1st December. Real GDP was stronger than expected in Q3, accelerating on an annual basis from 1.9% to 2.5%, employment surged in November and gave little of that surprise strength back in December while inflation was broadly stable. The AUD/USD rate fell about 3.0% and while iron ore prices did fall after the last meeting, the price as of today was pretty much unchanged from the level on 1st December following a near-9% rally from the January low.

    In circumstances of better financial market conditions we see potential for the Australian dollar to perform better. However, on days like today when Asian equity markets are all lower with crude oil prices lower as well, the Australian dollar is likely to come under selling pressure given the RBA’s signal of the potential to act if conditions abroad were to worsen.”
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