THE TAKEAWAY: RBA minutes highlight soft Chinese and European demand > Drop in iron ore prices have miners uncertain, reluctant to lock in new contracts > Aussie little changed
The Reserve Bank of Australia minutes from the September policy meeting, where policy officials cut benchmark lending rates by 25 basis points, highlighted contracting European demand and stalling Chinese exports as the key drivers behind their decision to reduce the cost of capital to 3.25 percent. RBA President Glenn Stevens said “slowing” Chinese growth accompanied by “declining exports to Europe for some time and, more recently, falls in exports to the United states and Japan” had resulted in weaker demand for steel. The RBA also said mining companies had reduced consumption plans and were reluctant to enter into longer term agreements while recent declines in iron ore prices may not bode well for revenue growth as China is the largest consumer of Australian exports.
Policy officials also noted labor markets had “eased’ over the last few months and noticed a “decline in the appetite for spending” which in time may exert additional downward pressure on consumer prices. The Aussie dollar was little changed as markets have already had ample time to react to the news. According to Credit Suisse data, market participants appear to be pricing in a 78 percent probability of another 25 basis point reduction to rates by the RBA during their next meeting on November 6. Looking forward, the RBA commodity price index is scheduled for release on November 1, producer prices are scheduled for November 2, and trade balance figures are slotted for November 5.
AUD/CAD, Daily Chart