The Reserve Bank of Australia, in its monthly monetary policy meeting today decided to leave interest rates unchanged 2.0% for the 5th consecutive month. The RBA’s monetary policy statement stuck to the basics noting that the Australian economy remains growing at a moderate pace supported by an accommodative monetary policy. The RBA expects the inflation to remain within the RBA’s target range while acknowledging the pickup in the labour market. The RBA however see’s further room for absorbing spare capacity in the labour markets while reiterating that the Australia economy was rising below its average trend.
On inflation, the RBA expects the current lower exchange rate in the Australian dollar would keep inflation consistent within its target range over the next year years. On the housing markets, the RBA noted that dwelling prices remained strong in cities such as Sydney and Melbourne but that the combined efforts of the regulatory authorities to clamp down on foreign investors in the real estate market was showing results.
The RBA’s meeting did not stress much on the exchange rate of the Australian dollar, indicating that the Central bank was largely satisfied with the current trend in the Aussie dollar.
The markets were widely expecting the RBA to leave rates unchanged at this meeting but call for a possibility of another rate cut by end of this year. While it is too early to speculate, further economic data and financial conditions are likely to dictate the future course of action from the RBA.
The Australian dollar surged on the RBA’s statement which was being seen as neutral. AUDUSD is up 0.60% for the day after opening the day at 0.7079. To date, the AUDUSD has posted a straight 4 days of gains with the next main resistance coming in at 0.7276. The gains come as the Aussie ignored the weak trade deficit numbers posted ahead of the RBA’s monetary policy decision.
The commodity risk currencies have managed to post strong gains led by the weaker US Dollar since last Friday’s NFP and also an improving sentiment surrounding China. The Aussie, Kiwi and the Canadian dollar have been the biggest gainers so far on a weaker US Dollar.
For the remainder of the week there are no major economic releases scheduled from Australia, leaving the AUD largely susceptible to the broader flows in the currency markets. The US trade balance data is due this evening which will be the main event. The stronger US Dollar in recent weeks is being seen as one of the reasons for the US trade balance data to post a strong number on weakening exports and increased imports.