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Aussie Boosted By Less Dovish RBA Minutes

Last updated 12/19/2011 8:05 PM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

The Aussie rebounded from the .9900 level in morning Asian trade in the wake of surprisingly hawkish RBA minutes that suggested the central bank may pause its rate cutting campaign for the time being. The RBA noted that recent global economic data was mixed and was particularly weak in Europe, but nevertheless remained robust in Asia and was improving in North America. With respect to China the RBA stated that, “ China's growth had been slowing, as policymakers there had intended, and most other economies in Asia had also slowed as trade in Asia was seeing some effects of the significant slowing in economic activity in Europe. Nonetheless, growth rates in Asia remained solid.”

On the domestic front the RBA noted that,”some of the recent economic data had been more positive than a few months earlier, and overall growth was consistent with trend. However, conditions varied significantly across sectors. Investment was picking up very strongly, and measures of household and business confidence had improved in recent months, though liaison reports suggested consumers remained cautious. The unemployment rate had been broadly steady, at a little over 5 per cent, after rising around mid year.”

The Board therefore was torn regarding the issue of a rate cut in December stating that,”the overall economy was expanding at a pace broadly in line with trend. Australia's main trading partners were also still recording solid growth. This did not suggest any strong need to cut interest rates.”

Having cut rates for two months in a row, the RBA appears to have turned neutral once again and will likely remain so unless economic conditions deteriorate rapidly. The news caught the market slightly off guard with few traders anticipating that the RBA would be so sanguine about the state of the Australian economy. As a result the Aussie quickly bounced to .9940 in the aftermath of the release and remained bid into the Asian mid-morning trade.   

If Australian interest remain steady at 4.25% for the next several months the Aussie will continue to enjoy a massive interest rate differential versus the other majors and as such will remain the preeminent risk trade in the currency market. The news should keep in the pair well bid and it may rally towards parity as the global day progresses is risk flows remain suportive.  

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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.