Aussie falls on RBA meeting minutes, Yen firms on BoJ Inaction

The RBA’s meeting minutes for the monetary policy review conducted earlier this month showed that the members acknowledged that growth was trending “below average” highlighting downside risks to the Australian economy. The members however noted that it was too early to assess the outcome of the Australian GDP growth and how it would be affected on account of global uncertainty.

While the RBA’s statement was overall optimistic, the rather blunt reference to the future growth forecasts was seen as being negative for the Australian dollar. The RBA noted that by following an accommodative interest rate policy, the lower exchange rate of the Aussie would help in the economy transition as investments in the mining sector continue to drop on account of the lower prevailing commodity prices. On the jobs front, which has been a bright spot for the Australian economy, the RBA acknowledged that employment in the economy was growing at a strong pace with an increase in the employment – population ratio increasing to 2013 highs. The RBA board brushed aside concerns of a slowdown from China, which is the largest trading partner for Australia. The board noted that while China growth has eased in recent months, it would not have much of an effect on Australia.

The Aussie dollar which staged a strong rally gaining over 3% over the past week was seen trading weaker as the currency fell off the highs of 0.715 to trade near 0.7112.

Another big development from Australia was the fact that the incumbent Prime Minister, Tony Abbot was ousted yesterday in a vote of confidence motion paving way for long time contender, Malcolm Turnbull to be voted as the Prime Minister.

Meanwhile, the Bank of Japan opted to keep its monetary policy unchanged. The BoJ’s policy review was largely a non-event with the board keeping its previous narrative that growth would pick up and that the BoJ’s QQE program was being effective. The main talking points for the BoJ were that exports were seen to be mostly flat and the board cut its assessment on output. One BoJ member, Kiuchi had proposed tapering the annual JGB purchases to 45 trillion Yen but was rejected by a majority vote.

Today’s BoJ monetary policy was widely expected to be a non event in light of the Fed’s interest rate decision due this Thursday. Estimates are however that the Bank of Japan could act in October by expanding its stimulus package.

The Yen was trading stronger in today’s session, leading the way with gains of 0.38% after the BoJ released its monetary policy statement. USDJPY was trend lower with the currency falling 119.8 level of support. The Yen is also positioned for strong weekly gains, up 0.65% for the week already as the market positions itself ahead of the Fed’s rate hike risks which has seen the Yen being bid up.