RBA Keeps Easing Bias
The RBA left the policy rate on hold at a record low of 3.0%, very much inline with consensus opinion. However, the explicit easing bias was kept in place, triggered a 40-pip selloff in AUDUSD. Although the current policy settings were deemed to be appropriate today, “the inflation outlook…would afford scope to ease policy further, should that be necessary to support demand”. Our Australian economists doubt it will come to this as tentative signs of improvement in the non-mining sectors of the economy are already evident. The statement went on to make the usual reference to the exchange rate being “higher than might have been expected”, but there was no evidence that the RBA has become less tolerant of this state of affairs. The overnight developments have worked in favour of our short AUDNZD trade recommendation. Next up, Wednesday’s milk auction represents the next obstacle to navigate. Meanwhile, EURUSD slipped back below 1.35 far too easily overnight and the euro continues to look somewhat vulnerable in the very short term in face of rising political uncertainty in Spain and Italy.
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UBS Investment Bank