Jun 19, 2012

AUD to Appreciate on Hawkish RBA, Resilient Economy

Before the June RBA meeting, the market was predicting even chances of a quarter and half point cuts. This was despite the fact that relatively speaking Australia's economy has been faring quite well despite the recent weakness in China. Well so much for that, as the minutes of RBA's monetary policy meeting showed today.

The Board considered whether the recent information warranted a further reduction in the cash rate. The arguments were finely balanced.
Cutting aggressively was apparently not even discussed. The question was whether to cut at all.

Interestingly, the AUD has been hit quite heavily in May's equity selloff, but that was mostly fueled by fears of a collapse of the Euro. At the same time the yields on Australia's government bonds have been hitting consecutive record lows, as investors look for anything safe that has a non-zero yield. As such, barring a sudden and violent collapse in China (and that will be pushed back by aggressive stimulus from Beijing) the Australian dollar is likely to appreciate in the near term.