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RBA minutes reveal the board open to a lower cash rate is soft conditions persist.

Written by Sam Coxhead on September 18th, 2012.      0 comments

2:30 PM (NZT) The just released minutes from the previous RBA monetary policy meeting reveal they are poised to ease should economic conditions worsen.
Of concern to the central bank are the high level of the Australian dollar and both the falling commodity price and recent scaling back of forecast mining investment. The RBA’s commodity index had fallen by over 7% in the previous month, with iron-ore down 35% and choking coal by almost 25% . And since the meeting there have been further falls in commodity markets on aggregate. Non-mining investment has been subdued in 2012, and is likely to continue to be so in the coming quarters. The employment conditions has softened recently with an increase in recipients of the unemployment benefit noted. Leading indicators for labour demand has continued to soften also.
The international growth profile has continued to soften over the previous month. Wider Asian growth had reduced in line with lower demand from China for regional imports. Economic conditions were unsurprisingly weak in Europe, and the US was seen growing at only a modest pace.
It seems from these minutes like the RBA were  potentially to react with modest 25pt easing to the cash rate at the October and November meetings, to see a 3% cash rate by the end of the year.
Since the meeting we have seen somewhat positive structural developments in Europe, that should enable economic indicators to slowly recover over time. Last week’s announcement from the FED of their further quantitative easing program will be of impact if previous efforts are a lead. How this impacts the decision making process at the RBA remains to be seen, but certainly the increased demand for the AUD since the FED announcement will be an unwelcomed externality.
Interestingly the initial reaction to the minutes was  a small move lower from the AUD. However this was short lived, and before long we saw a sharp 35point  jump higher. Explaining this jump would be the exiting of “sold AUD” positions from investors looking for a stronger indication of a move at the next meeting.  Overall the upside momentum for the AUD (and NZD) has waned in the last few sessions. And any further upside moves are likely to be laboured from current levels.
          Past 24 hours
  Current level Pre-RBA mins  % Chge since RBA mins   Low High
NZD/USD 0.8267 0.8250 0.21%   0.8240 0.8305
AUD/USD 1.0479 1.0457 0.21%   1.0442 1.0543
NZD/AUD 0.7890 0.7889 0.01%   0.7850 0.7894
AUD/NZD 1.2674 1.2676 -0.01%   1.2668 1.2739
NZD/GBP 0.5088 0.5080 0.16%   0.5074 0.5118
NZD/EUR 0.6305 0.6300 0.08%   0.6284 0.6333
NZD/YEN 64.97 64.82 0.23%   64.70 65.34
NZD/CAD 0.8046 0.8042 0.05%   0.8022 0.8069
Topics: RBA