RBA Minutes Suggest A Pause

Last updated 3/16/2010 2:22 AM ET (GMT -5) 1 Comments

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Boris Schlossberg

Director of Currency Research, GFT

The RBA released its minutes of the March meeting at 20:30 GMT today and the overall tone of the report suggested that Australian monetary authorities will proceed cautiously with any further rate hikes in the near term. The RBA policy officials noted that economic conditions continued to improve, stating , “Domestically, most economic indicators continued to point to a strengthening in economic activity. Staff estimates suggested that the national accounts, to be released the next day, would show economic growth of ¾–1 per  cent in the December quarter. January data suggested that the labour market had continued to firm, consumption spending had held up reasonably well overall and a pick-up in dwelling activity was under way.”

However, members were concerned about developments elsewhere focusing particularly on the fiscal problems in Europe. The minutes stated that, “the fiscal problems in Europe, if not resolved satisfactorily, could result in renewed turmoil in markets and fresh weakness in the global economy, which could have implications for Australia.” Nevertheless, the minutes noted that “while such an outcome could not be ruled out, it was not the most likely one. “

The minutes concluded that, “evidence that had become available recently had confirmed that it remained appropriate for interest rates to move gradually towards normal levels,”  but left no impression that the RBA would do so at the next meeting scheduled for April 6 ^th . Part of the reason for the pause may be the sharp drop off in home lending data which fell by- 7.9% in January as result of rate tightening already in place.

Having raised rates to 4.00% the RBA is clearly closer to the end rather than beginning of its tightening cycle  and with inflation pressures essentially non –existent , the Australian monetary authorities are likely to pace themselves for the rest of the year as they move towards the normalization rate of 4.5%. 

The FX market initially sold Aussie on the mild disappointment that rates will not rise in April, but the unit quickly stabilized and was trading above its New York close in late Asian session.  The focus for the rest of day will shift to North America for the FOMC announcement. If the Fed retains the same language without making any adjustment to the “extended period” clause, the Aussie could rally further as traders   will become  more disappointed with the inaction by the Fed rather than the RBA.

Comments (1)

alexjbrandt

March 16, 2010 at 03:36 AM ET

Can't say I'm surprised that they would take a pause. Kind of more surprised that the market would expect them to raise rates next month.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.