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RBA minutes hold no surprises

Written by Sam Coxhead on April 19th, 2011.      0 comments

11:45 AM (AEST) The just released RBA minutes show they are happy with the current cash rate of 4.75% They acknowledge some impact to exports to their second biggest trading partner Japan in the short term, but expect a pickup in demand as the rebuilding starts. All is all it looks to be a typically measured assessment from the RBA, and they feel comfortable with their current rate of 4.75% and do not feel it will change in the short term. The AUD has softened a touch since the minutes were released, dragging the NZD along with it.
Meanwhile overnight a wave of risk aversion hit the markets. The EUR remains under pressure as fears of a Greek debt default gather momentum. There has been clear evidence of investor stop loss selling as  the single currency dropped over 2% against the US dollar. The commodity currencies of the NZD, AUD and CAD also saw selling pressure, but have recovered from their lows. Equity markets saw some selling pressure and this has flowed through to Asia, with the Nikkei opening -1.1%.
Adding to the mix was the S&P move to put the US on a credit rating “negative watch”. Apparently there is a one in three chance that the US will be downgraded in the next two years as their debt load balloons. Perversely, the USD actually was bought on this news as the risk currencies were sold and the flight to safety bias hit the market.
          Last 24 hours trade
  Current level Pre-RBA Minutes Chge since RBA Minutes   Low High
NZD/USD 0.7860 0.7872 -0.2%   0.7841 0.7958
AUD/USD 1.0475 1.0492 -0.2%   1.0454 1.0573
NZD/AUD 0.7504 0.7504 0.0%   0.7474 0.7531
AUD/NZD 1.3326 1.3325 0.0%   1.3279 1.3378
NZD/GBP 0.4836 0.4840 -0.1%   0.4820 0.4881
NZD/EUR 0.5523 0.5527 -0.1%   0.5492 0.5561
NZD/JPY 64.85 65.00 -0.2%   64.46 66.05
NZD/CAD 0.7590 0.7595 -0.1%   0.7578 0.7656
I have copied a portion of the RBA’s minutes below and a link to the full copy version on their site is here
Considerations for Monetary Policy
Members observed that recent events in Japan had increased the uncertainty around the near-term global outlook. There were also other continuing uncertainties, including the sovereign debt problems in Europe and the impact of higher oil prices on the large advanced economies where recoveries were less well established. In Asia, the challenges appeared to be in the direction of coping with strong growth and rising inflation. While it remained to be seen how these uncertainties would ultimately be resolved, the most likely outlook was that growth in the world economy in the period ahead would be around trend pace, or a little higher, and that the price of Australia’s main exports would remain at high levels for some time to come.
Domestically, employment growth had slowed somewhat from the rapid rate seen in 2010, though the outlook for the labour market remained positive. It appeared that domestic demand was growing at a solid pace and was likely to continue to do so in the medium term, with stronger-than-average growth in business investment offsetting weaker-than-average growth in consumption and dwelling investment. While this combination was leading to considerable variation in conditions across sectors, it was broadly in line with the forecasts that the staff had had for some time. In the short term, however, the economic data were likely to be significantly affected by the earlier floods and cyclone. Headline inflation was likely to be quite high in the March quarter, while GDP would be held down, to a greater extent than earlier assumed, by the lost coal production and the delays in resuming mining operations. In reaching its decision, the Board would look through these fluctuations.
Reflecting the Board’s earlier decisions and developments in financial markets, interest rates on both housing and business loans were a little above average levels. Given the outlook for the economy, and in particular the high level of the terms of trade and the prospective further large increase in investment, members considered that this stance remained appropriate so as to ensure that the medium-term inflation outlook remained consistent with the target. Members therefore did not see a case to change the cash rate.