-RBA minutes
Australian politicians and policymakers are still playing the good and the bad cop. The Australian Dollar plunged to 0.9305 versus the buck, erasing some of the earlier gains, as the latest RBA minutes left no doubt about the role of Joe Hockey's annual budget in subduing the economy. The Aussie added more than 1% against the Group of 10 major currencies since the middle of March, while its trade-weighted index soared to the highest since November earlier this week.
Following worrying budget, which showed the government will cut its spending and impose fresh taxes, a dovish statement from the RBA was widely expected, while it seems that the situation is much more complicated. The latest minutes highlighted the uncertainty surrounding the monetary policy, as the central bank is trying to offset a massive slowdown in mining investment, mostly as the high exchange rate is weighing on the transition to expansion. Moreover, minutes showed it is hard to estimate whether record-low interest rates will offset a drop in mining investment and tighter fiscal policy, reinforcing speculations the easing cycle is not over yet, and the RBA can be forced to trim rates again. In order to boost exporters' profits and investment in the key sector, the RBA will have to lower the exchange rate of the Aussie, and it is unlikely policymakers will use any other tool, but the revision of the benchmark interest rate.
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