Trade Desk Thoughts: Reserve Bank of Australia Meeting Minutes

Release Explanation: The Reserve Bank of Australia is releasing the Minutes of the previous meeting, that discussed the need, or not, to hold or reduce interest rates. The information will allow a glimpse of what the tone is likely to be at the next meeting, and may just confirm for traders that they were correct in driving aussie valuations as low as they have done recently.

Trade Desk Thoughts: The Board has decided to leave the cash rate unchanged at 7.25 percent, but said it may need to cut rates soon to avoid a slowdown in the economy. Tighter financial conditions are causing the economy to slow while on the other hand rising trade would continue to substantially add to the national income. The Reserve Bank is expecting to have low economic growth in the second and third quarters. The bank is still aiming to keep inflation at an average of 2-3 percent. The main bullet points were:

CPI to reach 4.5% by year end- U.S. export markets may be affected by the economic slow-down- China's slowing of growth was noted- Japanese export markets were deteriorating- Slower European growth was noted- Australian consumer spending has deteriorated significantly in 2008- Housing stocks were up and building approvals were down- Household net worth declined by 5% in 2008- Business conditions were stable- Employment growth may moderate- Market expectations about monetary policy in Australia had changed significantly in the past month, reflecting the accumulating evidence of slower demand in the economy- The market had now fully priced in a cut in the cash rate by October, with a further cut by February- The national accounts for the June quarter, to be published in early September, were likely to show that growth of GDP had been low- Weighing up all these considerations, members judged that the current stance of policy was appropriate for the time being. Nonetheless, given the slower trend in demand, scope to move towards a less restrictive setting of monetary policy was judged to be increasing.

The RBA staing that the forex market had already priced in two rate cuts from the bank was interesting, very true it seems, but interesting that it was acknowledged that the aussie valuations have 0.50% of overnight rate cuts already embedded.

Forex Technical Reaction: The Aussie has been slightly weaker since the new day began several hours ago, losing 25 pips. The pair then tested the S1 area of the charts before getting back to where it opened.

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