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RBA leaves the cash rate unchanged but opens the way for easings

Written by Sam Coxhead on October 4th, 2011.      0 comments

2:55 PM (AEST) The risk aversion continued in offshore markets overnight. The increased uncertainty surrounding the extension of bailout funds for Greece has once again put intense pressure on equity markets with financial stocks leading the slump lower. Risk aversion increased across the board with commodities, equities and interest rates all lower. The NZD and AUD have both been in good supply, taking various support levels on different cross rates.
This morning in NZ the NZ Institute of Economic Research released its quarterly Survey of Business Opinion. This report paints a picture of the NZ economy recovering “on one crutch”. Economic activity has started to surge in Canterbury finally as the rebuild starts to kick off, and this contrasts flat demand across the rest of the country. The Survey points towards annual growth for the year to September 30 of just 1.5% and with a miserly quarterly increase of just .1%. Please note this survey was made before the recent market turmoil, the recent RBNZ assessment and the dual agency downgrade of the NZ sovereign debt rating.
The RBA just left the Australian cash rate unchanged at 4.75% but has acknowledged that both domestic and international conditions have softened. They are also unsure how the slowdown and credit issues in Europe and the US will impact Australia’s  trading partners in Asia. Basically they remain poised to react if they need to. They also have quite a bit of room on their side with a cash rate at 4.75% , a luxury that no other central bank in the western world.
The market sentiment continues to be very negative, and given the current environment it is hard to see this changing in the short term. The moves in the last week or so have been significant, in markets such as these it can be considered prudent to simply pick levels which you are happy with and not try and pick lows, as there is potential for sharp bounces in risk assets, however brief they may turn out to be.
          Past 24 hours
  Current level Pre- RBA  % Chge RBA   Low High
NZD/USD 0.7519 0.7538 -0.25%   0.7493 0.7642
AUD/USD 0.9488 0.9513 -0.26%   0.9473 0.9673
NZD/AUD 0.7925 0.7925 0.00%   0.7874 0.7925
AUD/NZD 1.2618 1.2618 0.00%   1.2618 1.2700
NZD/GBP 0.4872 0.4885 -0.27%   0.4857 0.4928
NZD/EUR 0.5697 0.5714 -0.30%   0.5681 0.5745
NZD/YEN 57.65 57.85 -0.35%   57.46 58.73
NZD/CAD 0.7928 0.7947 -0.24%   0.7900 0.8006