The Reserve Bank of Australia held rates steady at 4.5%, its first pause in increasing rates since February. Since October of last year, the bank has upped its benchmark rate six times totaling 1.5% or 150 basis points. In its statement the bank said that those rate hikes represent a significant adjustment to monetary policy, but they did leave the prospect of a return from the sidelines within a short period of time saying policy is appropriate only for the “near-term.”
While the Euro-zone situation will get most of the attention because of its effects on growth, bond rates, equity prices and commodity prices, the rate rate hikes by the RBA have also worked to cool the Australian economy.
- Bank lending rose in April at the
weaker pace in five months, climbing 0.2% compared to the 0.5% seen in
March.
- House prices grew at their slowest pace in 16-months, rising 0.3%
after gaining around 1% a month since the start of 2009.
- Building approvals were down 14.8% in April, the third time this year
that they have been negative. Approvals have dropped 25% in the six
months through March to the lowest level in nine years.
- Manufacturing activity weakened last month from its fastest pace in
almost eight years. The Australian Industry Group manufacturing PMI
posted a 56.3 reading in May, following a 59.8 reading in April.
- GDP is expected to show growth slowed to 0.6% in the 1st quarter from
0.9% in the 4th quarter.
There are still terms of trade and inflation issues that may mean further increases later this year or early 2011.
The Australian Dollar fell overnight, as “risk-off” trades gained, which meant the “safe-haven” US Dollar was stronger against riskier commodity currencies like the AUD.
As we can see from this hourly chart that showed the past several weeks of market action, we had a very strong slide in favor of the greenback in the middle of May as the Euro-zone debt crisis caused a flight away from risk. The AUD/USD fell from the 0.90 level down to 0.81. Last week, we saw the pair recover to the 50% retracement of that move, but this week we have again seen traders sell the Aussie. The 23.6% retracement of the downmove helped create some support. That was also a 50% retracement of the upswing from 0.8060 to 0.8545.
The NY session did see a return to risk, as the Euro managed to pare its overnight losses and the Pound surged against the greenback.
