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Steady as she goes from the RBA

Written by Sam Coxhead on March 1st, 2011.      0 comments

2:55 PM (AEST) Earlier on today the January Australian Retail Sales number was released slightly better than the market expected at +.5%, this caused the AUD to pop up a little in what has been a relatively quiet session for Asian trade.
The RBA just announced, as expected, they leave their cash rate unchanged. The statement is copied below and is a very measured statement. They are comfortable with the current level of the interest rate curve. The acknowledge there will be some pricing pressure and loss of activity due to the extreme weather of a few months ago, but over the medium term they expect these pressures to be released.
The AUD/USD remains very close to post float/modern era highs. The high so far today is 1.0202 and there is very solid resistance between 1.0200-1.0220. Since the announcement the AUD has given up a small amount of ground, as market participants that were looking for a more hawkish statement liquidate positions.
The NZD remains very much on the back burner as the market digests the impacts of the earthquake in Christchurch. The interest rate market have a cut to the NZ cash rate of 25pts fully priced for the March 10thRBNZ meeting and at this stage bias remains to price a little more than just 25pts. Economic activity for 2011 and most probably 2012 will certainly take a hit from this devastation, but over the medium term we can expect the rebuilding activity to create some extra growth.
Exports should get a break from the high level on the NZD in the short to medium term. The current round of USD weakness is the one thing that will be holding up the Trade Weighted Index level of the NZD.
The Australasian market now moves focus to tomorrow’s GDP number in Australia, with the market expecting +.6% for the Quarter. The brief statement below is well worth a read.

          Last 24 hours trade
  Current level Pre-RBA Chge since RBA   Low High
NZD/USD 0.7521 0.7518 0.0%   0.7509 0.7536
AUD/USD 1.0170 1.0185 -0.1%   1.0166 1.0202
NZD/AUD 0.7394 0.7383 0.1%   0.7371 0.7398
AUD/NZD 1.3524 1.3545 -0.2%   1.3518 1.3567
NZD/GBP 0.4621 0.4618 0.1%   0.4612 0.4634
NZD/EUR 0.5443 0.5441 0.0%   0.5436 0.5459
NZD/JPY 61.70 61.62 0.1%   61.48 61.71
NZD/CAD 0.7304 0.7299 0.1%   0.7295 0.7332
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. Commodity prices have risen further 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 effects of the natural disasters over the summer have reduced output, but production levels should 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.
The labour market firmed in 2010, with unusually strong growth in employment and a decline in the rate of unemployment. Most leading indicators suggest further growth in employment, though most likely at a slower pace. 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, but these 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.