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RBA to maintain old fashioned attitude despite the Aussie

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 4, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    With the forthcoming decision from the RBA today, we are prompted to recall the concerns that Yellen put forward in regards to China and global growth having been forewarned of just how uncertain the road ahead is to a systemic global recovery and the difficulties a lender of last resort takes on in these challenging times.

    It is now overtly obvious to all observers that there are tough times ahead for monetary policymakers. Times are quite different to back in beginning of the global financial crisis. I recall those days being back in autumn 2008 and early 2009 where the task of Central Banks was plane and simple; slash interest rates to a low a level as possible (the lowest recorded levels in history) and as fast as it could be done.

    Seven years on, Central Bankers are facing profound questions as to their policies that are being examined minutely, while no matter how hard they try, their policies don't seem to be working and markets are losing confidence in them, and there lies the fly in the ointment; the practices and patch work to date of Central Banks is the possible catalyst for the next financial crisis and it sounds to me that Yellen is well aware of that from her numerous mentions of "global concerns" in her recent delivery of a speech when speaking to the Economic Club of New York.

    The big risk now is if people start to lose confidence in the ability of central banks as that will be the day when we will see them attempt to repeat the same wash cycle as before, in financing yet more government spending to bring forward demand from the future where bubbles and asset price bubbles, that do not solve anything, will start to emerge again. At some stage, you have the result of an even bigger budget deficit and indeed the risk of hyperinflation and the issues that you get as a result of leaving everything to Central Banks.

    For today, we have the RBA. While there are no expectations for any call to action, they may well take the opportunity to jawbone the currency given the extent of which the Aussie has recently rallied. Analysts at TD Securities are indeed expecting the Central Bank to maintain its conditional easing bias, "Maintaining the old-fashioned attitude that monetary policy is for shaping domestic demand, not fighting financial markets."

    AUD/USD bid above 0.7416 – Commerzbank
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