With global financial markets trading in consolidative fashion this morning, the big news from the overnight session was the Reserve Bank of Australia’s monetary policy decision, where the central bank decided to leave policy unchanged with the cash rate at 2.0%, striking a slightly more hawkish tone than has been telegraphed in the past. Citing that the “prospects for an improvement in economic conditions had firmed a little”, the bank judged that keeping policy unchanged at this juncture was the preferred course of action. The RBA did note the inflation outlook provided scope to ease policy further from current levels if warranted, though stopped short at talking down the Australian dollar directly by referencing that the Aussie had been adjusting to the significant declines in commodity prices. The AUDUSD paired popped higher on the decision to keep policy unchanged, yet the pair has started to ebb lower as the earlier gains fade.
With the highly anticipated December meeting of the Federal Reserve approaching, it’s likely the RBA wanted to keep some dry power in the event of additional Fed delays which spark a sell-off in the greenback, not wanting to get too close to its lower bound of interest rate policy to give the central bank room to maneuver if the Fed doesn’t go ahead with their first interest rate increase in December. The RBA is cognizant the economy still needs to rotate away from the heavy reliance on commodities, and is hoping the lower value of the Australian dollar will spur exports and drive economic activity.
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