RBA Monetary Policy Statement

Release Explanation: Inflation in Australia has remained high in the recent period against a background of tight capacity and earlier strong growth in demand. Despite the indications of weaker demand in a number of economies, inflation remains a significant concern. Higher food and energy prices have contributed to a pick-up in consumer price inflation rates around the world over the past year, but in a number of emerging economies broader inflationary forces appear to have emerged. Reflecting these developments, monetary policy has been tightened recently in a number of these economies. In addition, the ECB increased its policy interest rate in July, and market expectations in the United States have also shifted towards tightening.

While inflation is likely to remain high in the short term, the Board judged at its August meeting that demand was slowing to an extent that could be expected to bring about a significant reduction in inflation over time. On this basis the Board decided that the existing monetary policy setting was appropriate for the time being. The Board will continue to monitor developments and make adjustments as required in order to promote sustainable growth consistent with the medium term inflation target of 2–3 percent.

Trade Desk Thoughts: Central banks will enact varying monetary policy in order to control price stability and economic growth. For some countries, central bank officials are required to enact policy that keeps domestic inflation within given ranges, while others operate more freely on a more de facto basis. This is the single most important reason why Currencies are bought and sold. A strong interest rate and robust business cycle will attract foreign investment. A weak interest rate will normally lead to a weak currency as investors swap the higher yielding currency for a profit.

Forex Technical Reaction: There have been some violent whipsaws created by this release. After an initial loss of approximately 30 pips the pair is sitting where it was before the news at .8870.

The LFB-Forex.com