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The RBA surprises and leaves the cash rate on hold at 4.25%

Written by Sam Coxhead on February 7th, 2012.      0 comments

5:20 PM (NZT)
The RBA just surprised the market and left the cash rate unchanged at 4.25%. Expectations had been for a 25pt cut. The market has scrambled to buy AUD in the wake of the decision, and again the AUD is pressing resistance levels on many different pairings.
The RBA sight improved credit markets in Europe and slightly stronger performances from China and the US as the drivers.
It seems that they are going to take the wait and see approach on further easing from the current 4.25%. Given the market was close to 80% pricing a cut to 4.0% , there is clearly potential for further upside in the AUD on most pairings.
Of note in particular will be the form of the NZD against the AUID reaction. There has been clear evidence of positioning into NZ dollars ahead of this decision and this leaves the door open for reversing of these positions, or selling of NZ dollar against the AUD. This has happened already since the announcement but we remain in familiar territory for the time being. The real test will likely come in the next 24 to 48 hours.
Below is copied the final paragraph of the statement accompanying the unchanged decision and captures the sentiment well.
“At today's meeting, the Board noted that interest rates for borrowers have declined to be close to their medium-term average, as a result of the actions at the Board's previous two meetings. With growth expected to be close to trend and inflation close to target, the Board judged that the setting of monetary policy was appropriate for the moment. Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy. The Board will continue to monitor information on economic and financial conditions and adjust the cash rate as necessary to foster sustainable growth and low inflation.” From
          Past 24 hours
  Current level Pre-RBA  % Chge since RBA   Low High
NZD/USD 0.8338 0.8338 0.00%   0.8293 0.8351
AUD/USD 1.0778 1.0706 0.67%   1.0679 1.0747
NZD/AUD 0.7737 0.7789 -0.67%   0.7735 0.7789
AUD/NZD 1.2925 1.2839 0.67%   1.2839 1.2928
NZD/GBP 0.5275 0.5275 0.00%   0.5252 0.5282
NZD/EUR 0.6368 0.6360 0.13%   0.6340 0.6377
NZD/YEN 63.95 64.00 -0.08%   63.47 64.00
NZD/CAD 0.8315 0.8315 0.00%   0.8257 0.8317