"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
During September's policy 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, taking into account that the Chinese economy is back on the track of sustain growth and the U.S. is expected to start QE tapering later this month. Though the RBA stayed pat on its monetary policy on September 3, they expressed their concerns about domestic economy. Australian central bank has made eight adjustments to its benchmark interest rate between November 2011 and August 2013 aiming to ease the economy through a severe patch caused by a decline in commodity prices and waning mining boom. The latest comments are bolstering the view Australian policymakers are remaining in data-watching mode.
In addition to that, the RBA continues expressing its preference for a lower domestic currency. On Monday the Aussie climbed to a three-month against its U.S. counterpart as investors bet on a possibility of a stimulus withdrawal. Moreover, the three-year Australian government bonds dropped six basis points to 2.85%, unwinding the most of the increase since Australian authorities signalled currency may weaken. The strength of Aussie is major concerns for the RBA as according to their estimates, a 10% drop in currency boosts nation's GDP by between 0.5% and 1% over about two years.
© Dukascopy Bank SA