RBA Cuts 25bp
As expected, the RBA cut the cash rate to 25bp as expected, though our economists note that all the indications are that given the improvements in the non-mining economy, the RBA will probably stay on hold for now. Given that markets were pricing in a good chance of up to 3 cuts on a 12-month basis, clearly the FX world was positioned for something more aggressive and the immediate reaction post-RBA has managed to squeeze out some shorts. Our economists note that the RBA has acknowledged other risks to the economy and ‘the restraining impact of the AUD’s strength’ could push them to do more, but as always direction will be contingent on CPI and labour market developments. We continue to see AUDUSD trending lower towards parity heading into next year, but for now a yield-seeking world will be happy to provide bids well above that level. Ahead today, the data calendar is rather light and investors will likely focus on the progress of the fiscal cliff talks. EURUSD traded 1.3047-1.3064 and SDJPY 82.05-82.26.
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UBS Investment Bank