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Preview: Australian Dollar Declines Before RBA Decision

Christopher Almeida

THE TAKEAWAY: The Australian Dollar eyes the RBA statement as mixed signals are sent by improved domestic and Chinese data with a concerning global macro-economic backdrop.


Preview_Australian_Dollar_Declines_Before_RBA_Decision_body_rbafeb52013.png, Preview: Australian Dollar Declines Before RBA Decision

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At the first Reserve Bank of Australia meeting for 2013, the RBA decided to hold interest rates at 3.00 per cent, the interest rate since December of 2012. The decision to hold rates came after some relatively soft Australian retail data for the month of January, as well as some data out of China to suggest that growth was stabilizing. The RBA’s statement saw an outlook that was somewhat dovish as policy makers afforded scope to ease policy further despite the easing that took place throughout 2012. This outlook saw the so called ‘Aussie’ decline as investors started to price in a potential rate cut at the March 5th meeting. Overnight swap indexes at one point had priced in a 57% chance of a 25 basis point rate cut after the February meeting, but chances are now seen at a mere 17%.


Traders have dumped their holdings in the risk-based currency over February and into early March as concerns resurfaced over the state of the Euro-zone as a result of the political instability in Italy, as well as growth worries in the United States stemming from the sequester. The Assistant Governor Guy Debelle’s speech on the 25th of February saw further declines in the Aussie as Debelle signaled that the RBA could cut rates to weaken the Dollar. It remains to be seen whether a rate cut is really on the cards or whether it was an attempt by Debelle to talk the currency downwards. With the Australian dollar testing levels today not seen since July 2012, and February seeing more robust data from China, Australia’s major trading partner as well as improved domestic figures, investor will eye the RBA’s outlook to decide whether the Dollar continues to head towards parity, or whether a rally is in order.




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