The Reserve Bank of Australia released the minutes from
its September meeting last night and the Australian dollar has since weakened. This
is because the minutes were probably the most dovish we have seen from the RBA
in six months, suggesting a cut to its 3.50% interest rate could be just around
the corner. To say the RBA has signaled a move may be an overstatement but the we are hearing the hints loud and clear.
The minutes included the assertion that "the current
assessment of the inflation outlook continued to provide scope to adjust policy
in response to any significant deterioration in the outlook for growth." This
is a telling statement.
Australian data
has not overall been particularly positive of late but it is hardly reason for the RBA to panic. Indeed, the RBA appears to be confident that
domestic growth is on the right path. Investment looks to be positive for the
rest of the year, consumer confidence is up and the unemployment picture is relatively
stable, as shown by the recent fall to 5.1%.
Rather,
evidence of renewed weakness in the Chinese economy is a major driver. Linked
to this is the second issue on the RBA’s mind, which is declining commodity
prices, in particular iron ore and coal prices. It’s not just China that the RBA is concerned with either; data from the
eurozone and the US
is also pointing to a further global slowdown.
So
the bank has changed from a neutral tone to an easing bias. The comments
reflect those within the RBA’s March meeting, which was followed by a 0.50%
interest rate cut in April. We don’t expect a 0.50% cut in October, but we do
expect a 0.25% cut, and then another in November or December. The Fed and the
ECB’s recent monetary policy decisions will surely aid global growth eventually
but this will take time to feed through and results won’t come soon enough for
the RBA.
Richard Driver
Currency Analyst
Caxton FX
