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RBA plays waiting game and the European debt issues escalate

Written by Sam Coxhead on September 6th, 2011.      0 comments

5:05 PM (NZT) The Reserve Bank of Australia just left the cash rate unchanged at 4.75% as widely expected. In their prepared statement they acknowledge the lower global growth profile and uncertainty in the major economies of Europe and the US.  They seem content to continue with their wait and see approach, and retain the room to move to easier monetary conditions should the global outlook continue to deteriorate. It would appear that they are maintaining the cash rate as they have concerns about the medium term outlook for Australian inflationary pressures. The key question is whether or not the softer global outlook and domestic growth profile will contain the inflationary pressures over time.
The AUD has reacted with a little strength, albeit a small reaction when compared to moves seen overnight. The fear in Europe around the escalating debt situation reached crescendo, with all main European equity indexes being 5% lower at one stage. Banking stocks remain the leaders in the push lower. The Australasian currencies rightly saw themselves pushed lower as the fears increased. European officials have been busy attempting to stem the steep fall in sentiment to avoid another push into full blown financial crisis.  Expect volatility to continue this week as further pressure is placed on finance and government officials alike to forge a path through the current issues. Certainly the economic growth profile will  continue to suffer and the rebound to average growth levels will be pushed further into the years ahead.
          Past 24 hours
  Current level Pre- RBA  % Chge RBA   Low High
NZD/USD 0.8292 0.8292 0.00%   0.8260 0.8474
AUD/USD 1.0521 1.0512 0.09%   1.0492 1.0638
NZD/AUD 0.7881 0.7888 -0.09%   0.7864 0.7969
AUD/NZD 1.2689 1.2677 0.09%   1.2549 1.2716
NZD/GBP 0.5156 0.5152 0.08%   0.5135 0.5225
NZD/EUR 0.5895 0.5895 0.00%   0.5873 0.5977
NZD/YEN 63.70 63.70 0.00%   63.57 65.21
NZD/CAD 0.8220 0.8220 0.00%   0.8185 0.8357