The RBA meeting minutes revealed earlier today showed that the monetary policy committee decided to cut interest rates by 25bps to 2.25% as data showed that the Australia economy was slowing down. The board had initially considered cutting rates in March but decided to opt for the rate cut in February giving the RBA the opportunity for more detailed communication in its quarterly monetary policy review.
The RBA noted that it remains concerned about the strength of the housing market, especially in cities such as Sydney and Melbourne and the investor activity in the sector while economic outlook continues to remain bleak.
The RBA said that it would closely monitor the developments in the housing markets as lending to investors in the housing sector continues to strengthen. Although a lower interest rate typically encourages more home buyers into the markets, the RBA said that it had to cut rates bearing in mind the overall slowdown in the Australia economy. But the board remained optimistic stating that growth was likely to return later in the year while unemployment rate would continue to peak in the coming months.
The RBA also had a few words for the Australian dollar, reiterating its stand that a lower exchange rate was essential in order to achieve balanced growth. There were no references to any future rate cuts in the RBA minutes leaving many economists to speculate that further deterioration in the Australian economy could possibly see another rate cut likely in March or in May this year with the unemployment rate being the major short term concern.
But considering that there are no major economic releases from Australia until the next RBA meeting due in early March, it is quite possible for the RBA to adopt a wait and watch mode as major indicators such as quarterly GDP are released.
Although the RBA minutes were dovish, the Australia Dollar shrugged aside its weakness after dipping to an intraday low towards 0.774 before bouncing back, to trade near 0.779 at the time of writing.
The 1-hour intraday charts shows a support/resistance level being established near 0.7788 levels, which if prices manage to hold above this level, could see a potential rally towards 0.782 followed by 0.787 levels.
The major risks to the Australian dollar comes from the US FOMC meeting minutes tomorrow, which if is shown to be hawkish going by its statement, then the Aussie could see some short term weakness based on the Dollar’s rally. The Dollar index continues to trade within a range pointing to a possible break out in either direction, which could either see most of its cross currencies either take a sharp fall or rally on the Dollar’s weakness.
