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RBA leaves cash rate unchanged, high AUD curtailing inflationary pressure

Written by Sam Coxhead on April 5th, 2011.      0 comments

2:42 PM (AEST) The Reserve Bank of Australia just announced they are leaving the cash rate unchanged as entirely expected. The statement is very moderate and acknowledges strengths and risks to the Australian economy and mentions the high level of the AUD and the what it considers mildly restrictive monetary policy. The mention of the AUD level is conspicuous to my mind and probably explains today’s price action. Inflation being kept in check by the high value of the AUD.
The AUD weakened from yesterday’s post float highs against the USD at 1.0417, and coming into the announcement was lower across the board with stop loss orders being trigger against the NZD, meaning the fall against the NZD was sharp times.
There has been little reaction to the statement with the AUD sitting on or close to the day’s lows on most cross rates.
The Statement released by the RBA is copied below and is a good description of the current Australian economic climate.
          Last 24 hours trade
  Current level Pre-RBA Chge since RBA   Low High
NZD/USD 0.7678 0.7681 0.0%   0.7661 0.7705
AUD/USD 1.0324 1.0329 0.0%   1.0316 1.0396
NZD/AUD 0.7436 0.7437 0.0%   0.7389 0.7445
AUD/NZD 1.3448 1.3446 0.0%   1.3431 1.3532
NZD/GBP 0.4764 0.4765 0.0%   0.4739 0.4773
NZD/EUR 0.5409 0.5412 -0.1%   0.5383 0.5416
NZD/JPY 64.79 64.78 0.0%   64.27 64.28
NZD/CAD 0.7431 0.7434 0.0%   0.7389 0.7443
Copied from the RBA website :
Statement by Glenn Stevens, Governor: Monetary Policy Decision
At its meeting today, the Board decided to leave the cash rate unchanged at 4.75 per cent.
The global economy is continuing its expansion, led by very strong growth in the Asian region. The recent disaster in Japan will have a noticeable effect on Japanese production in the near term, although the impact on the broader Asian region is expected to be limited. Commodity prices, including oil prices, have risen over recent months, pushing up measures of consumer price inflation in many countries. A number of countries have been moving to tighten their monetary policy settings. Overall, though, financial conditions for the global economy remain accommodative.
Australia's terms of trade are at their highest level since the early 1950s and national income is growing strongly. Private investment is picking up, mainly in the resources sector, in response to high levels of commodity prices. In the household sector thus far, in contrast, there continues to be caution in spending and borrowing, and a higher rate of saving out of current income. The natural disasters over the summer have reduced output and the resumption of coal production in flooded mines is taking longer than initially expected. Production levels should, however, recover over the months ahead, and there will be a mild boost to demand from the rebuilding efforts as they get under way.
Asset values have generally been little changed over recent months and overall credit growth remains quite subdued, notwithstanding evidence of some greater willingness to lend. Business balance sheets generally are being strengthened, and the run‑up in household leverage has abated.
Growth in employment has moderated over recent months and the unemployment rate has held steady at 5 per cent. Most leading indicators suggest further growth in employment, though most likely at a slower pace than in 2010. Reports of skills shortages remain confined, at this point, to the resources and related sectors. After the significant decline in 2009, growth in wages has returned to rates seen prior to the downturn.
Inflation is consistent with the medium-term objective of monetary policy, having declined significantly from its peak in 2008. These moderate outcomes are being assisted by the high level of the exchange rate, the earlier decline in wages growth and strong competition in some key markets, which have worked to offset large rises in utilities prices. Production losses due to weather are temporarily raising prices for some agricultural produce, which will boost the March quarter CPI, but these prices should fall back later in the year. Overall, looking through these temporary effects, the Bank expects that inflation over the year ahead will continue to be consistent with the 2–3 per cent target.
At today's meeting, the Board judged that the current mildly restrictive stance of monetary policy remained appropriate in view of the general macroeconomic outlook.