Australia Keeps Its Rates Unchanged

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As expected the RBA left its benchmark rate unchanged at 3.5% stating that monetary policy was “appropriate” for the time being. In its monthly monetary policy meeting the Australian central bank noted that, “Growth in the world economy picked up in the early months of 2012, having slowed in the second half of 2011. But more recent indicators continue to suggest weakening in Europe and a slower pace of growth in China. “

The RBA stated that while the housing market remains “subdued” labor conditions “firmed a little, notwithstanding job shedding in some industries; the rate of unemployment remains low.” Despite the cautious assessment of housing, today’s data showed that Building Approvals soared in the month of June rising by 27.3% versus 5.1% eyed.

Overall the RBA appeared to be content with the current state of monetary policy and may continue to keep rates on hold for the foreseeable future. Conditions in the Australian economy remain near equilibrium levels and unless global demand and especially growth in China weakens materially the RBA is unlikely to ease further after having cut rates by 125 basis points since last November.

The Australian dollar saw little reaction to the news but remained generally well bid in Asian and early European trade holding near the top if its range at 1.0265. As the threat of further rate cuts by the RBA appears to have eased, the Aussie is beginning to reclaim its status as king of the carry trade amongst the majors and therefore could rally further towards the 1.0300 level if risk flows prove supportive as the day proceeds.

Boris Schlossberg
Managing Director

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