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RBA Minutes to Reflect Policy Statement Sentiment

Christopher Vecchio

At their September meeting, the Reserve Bank of Australia kept its main interest rate on hold at 3.50%, the highest main rate among the developed economies covered by DailyFX Research. However, especially over the past six-months, the Chinese economy has slowed sharper than anticipated, which has damaged future growth prospects for the Australian economy.

Why does this relationship matter? China is Australia’s largest trading partner, and thus, the Australian Dollar is very sensitive to the Chinese growth picture. A strong indicator for weakening Chinese growth has been the price of Iron Ore – Australia’s main commodity export – which has plummeted in recent months from $150.20/metric ton to as low as $86.20/metric ton on September 6 (-42.61%!). The evidence is clear – and our long-held view of a “hard landing” in China is being vindicated (for now).

In the policy statement accompanying the RBA’s Rate Decision, Governor Glenn Stevens issued a more optimistic tone than anticipated, which should be reflected in the Minutes. “Growth has been running close to trend, led by very large increases in capital spending in the resources sector,” he said. “Labor market data have shown moderate employment growth, even with job shedding in some industries, and the rate of unemployment has thus far remained low.” Governor Stevens also noted that domestic consumption was “quite firm” while acknowledging that the Chinese growth picture was worsening. In all, it’s unlikely that the Minutes deviate far from the policy statement. The key pairs to watch are AUDJPY and AUDUSD.

--- Written by Christopher Vecchio, Currency Analyst

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