The RBA cut its growth forecast for 2013 from 3.0% to 2.5%, reiterating that the inflation outlook provides room for further rate cuts if needed. The bank, however, was somewhat upbeat about the outlook for the global economy, stating that Asia is going to be the driving force behind much of the world’s growth in coming quarters. The monetary policy statement wasn’t too dissimilar from RBA Governor Stevens’ remarks following Tuesday’s policy meeting, nor was it largely unexpected.
The RBA gives its take on the Australian economy
Recent economic data out of Australia has disappointed in some key areas, namely retail sales and other non-mining sectors. The reserve bank hinted at this problem today in its quarterly monetary policy statement. The disparity between resource based industries and the rest of the economy may be causing the board some sleepless nights. Although, the RBA noted there has been some positive developments in residential housing due to its recent attempts to stimulate demand. But non-residential building is another story, with business sentiment and investment outside the mining sector still very subdued.
Another issue which the RBA highlighted today is the value of the Australian dollar. The exchange rate is well above its long-term average and is adversely affecting some trade exposed sectors of the economy. On jobs, the RBA expects a modest surge in employment to be outdone by increases in the size of the population, thereby causing the unemployment rate to slowly drift higher.
Therefore, interest rates remaining at 3.00% may depend on expected improvements in the global economy continuing to outshine a benign domestic inflation outlook. In order to judge this the RBA will be keeping a close eye of domestic economic data.
More positive data out of China
In China, both exports and imports increased more than expected during January, with the former rising 25.0% y/y (exp 17.5%) and latter increasing 28.8% y/y (exp 23.5%), brining China’s trade surplus to $29.15bn from $31.62bn. The number reinforces the belief that China’s growth continues to rebound off last year’s lows, a notion which was founded on the back of positive readings from key parts of China’s economy, including manufacturing and investment.
AUDUSD initially took a hit on the back of the RBA’s monetary policy statement, before retracing all of these losses after the release of China’s trade data. The pair bounced off support around 1.0255 and continued to rise until it ran into a wall around 1.0300. The Chinese trade data also helped to lift the euro and the kiwi against the dollar. EURUSD managed to break back above 1.3400 and NZDUSD tested a resistance level around 0.8355.
Ones to watch
AUDUSD – with Chinese inflation data out later today the aussie continues to be a key pair to watch. While China’s trade data was positive, it is nothing new. The market is getting used to good data out of China, but the RBA’s willingness to cut rates if needed may continue to weigh on the pair. Evidence of this can be seen in the pair’s inability to push back above 1.0300 after the impressive trade data.
AUDUSD – hourly