"The big picture remains that the RBA is on hold for now and remains in data-watching mode. At the same time, the RBA continues to express its preference for a lower Australian dollar."
- Alvin Pontoh, Singapore-based strategist at TD Securities
While new government led by Tony Abbott pledged structural reforms to revive the economy and leading index suggest brighter picture, the value of domestic currency is posing certain problems for Australian authorities. The Aussie remains very high around 0.94 against its U.S. counterpart, causing ongoing concern for the RBA. The currency surged to 0.95-plus after the FOMC meeting where Bernanke said it would wait with the widely-anticipated tapering of its QE. Since the beginning of the programme in 2008, the Aussie has appreciated more than 40% against the greenback. However, according to Australian companies, the central bank should not be tempted to become too proactive in its desire to rein in the exchange rate.
Prior to Bernanke's comments, many market participants believed the RBA's easing cycle was completed, after it cut its benchmark interest rate to 2.5%, however, many are now expecting another rate cut in November. Taking into account recent data, is can be widely expected the easing cycle could end as soon as Australian policymakers cut the rate to as low as 2%. Meanwhile, during September's meeting the Reserve Bank of Australia assured once again its pledge to retain the option of cutting interest rates; however, saying there is no imminent intention to reduce them any time soon.
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