The Reserve Bank of Australia today chose to keep its 4.25% cash rate unchanged...
The Reserve Bank of Australia today chose to keep its 4.25% cash rate unchanged. November and December had seen rate cuts, implemented by the central bank, meant for helping the country’s economy as it is impacted by the global economic slowdown. The Reserve Bank’s governor, Glenn Stevens stated that current inflation and growth figures were falling around targeted areas and trends.The main differences that lie in the country’s economic health appear to lie between the different sectors. For instance, the labor market is slowing in areas such as manufacturing and banking with growth of employment lowering considerably last year. Furthermore, retails sales dropped in December (spending decreased on food purchases and eating out) as analysts expected them to appreciate.
On the other hand, the consumer price index (CPI) inflation has lowered around projected figures with expectations it will continue to fall (be in the 2%-3% range) in the next one-two quarters. Furthermore, borrowing rates declined and are more similar to their medium-term rate average due to the previous actions by the bank. Overall, the bank’s board concluded thatthe current fiscal policy was appropriate for the present environment. Stevens added "Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy,"exhibiting a willingness to alter policy if the need arose. Additional economic details provided by the bank included export health, which had declined moderately due to slowdowns in growth of major trading countries with Australia but never-the-less remained strong overall.The Australian government optimistically projects country growth will increase by 3.25% this and next year. The R.B.A. will publish latest gross domestic product and inflation predictions in their February 10th Monetary Policy release.
After the rate decision the AUDUSD rallied higher towards 1.0750. With the RBA taking a neutral stance, the AUDUSD continues to attract risk capital and we might see the AUDUSD head towards 1.1000. We have seen the AUDUSD rally 1000 pips since the start of 2012 despite decreased global risk appetite. For now the trend remains bullish for the Aussie.
Eugene Ross, Analyst
Admiral Markets
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